UNITED STATES

SECURITIES ANDEXCHANGE COMMISSION

Washington, D. C.20549

**FORM 10-K/A**

**No. 1**

(Mark One) 

[x] ANNUAL REPORT PURSUANT TOSECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 Forthe fiscal year ended December 31, 2003****

OR

[ ] TRANSITION REPORT PURSUANT TOSECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 Forthe transition period from _________ to _________.

Commission file number 1-12043

**OPPENHEIMERHOLDINGS INC.**

(Exact name ofregistrant as specified in its charter)

Ontario, Canada (State or other jurisdiction of incorporation or organization)

 98-0080034(I.R.S. Employer Identification No.)

P.O. Box 2015, Suite 1110

20 Eglinton Avenue West

Toronto, Ontario, Canada M4R 1K8

(Address of principal executiveoffices) (Zip Code)

Registrant’s Telephonenumber, including area code: (416) 322-1515

Securities registered pursuant toSection 12(b) of the Act:

Title of each class: Class A non-voting shares 

Name of each exchange onwhich registered: New YorkStock Exchange

Securities registered pursuant toSection 12(g) of the Act:

Title of each class:Not Applicable

Indicate by check mark whether theregistrant (1) has filed all reports required to be filed bySection 13 or 15(d) of the Securities Exchange Act of 1934 duringthe preceding 12 months (or for such shorter period that theregistrant was required to file such reports), and (2) has beensubject to such filing requirements for the past 90 days. Yes [ X] No [ ]

Indicate by check mark ifdisclosure of delinquent filers pursuant to Item 405 ofRegulation S-K is not contained herein, and will not becontained, to the best of the registrant’s knowledge, indefinitive proxy or information statements incorporated byreference in Part III of this Form 10-K or any amendment to thisForm 10-K. [ X ]

Indicate by check mark whether theregistrant is an accelerated filer (as defined in Rule 12b-2 ofthe Securities Exchange Act of 1934). Yes [ X ] No [ ]

The aggregate market value of thevoting stock of the Company held by non-affiliates of the Companycannot be calculated in a meaningful way because there is onlylimited trading in the class of voting stock of the Company. Theaggregate market value of the Class A non-voting shares held bynon-affiliates of the Company at June 30, 2003 was $355,695,000based on the closing price of the Class A non-voting shares onthe New York Stock Exchange as at June 30, 2003 of $27.96.

The number of shares of theCompany’s Class A non-voting shares and Class B votingshares (being the only classes of common stock of the Company),outstanding on March 9, 2004 was 13,322,416 and 99,680 shares,respectively.

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**EXPLANATORY NOTE**

 

This Amendment No. 1 to our AnnualReport on Form 10-K is being filed to amend and reflect therestatement of our Consolidated Financial Statements as ofDecember 31, 2003. The Company discovered an error in thecalculation of interest expense related to its first and secondvariable rate exchangeable debentures. The Company expensedactual interest on these debentures at the rate of 3% in 2003 and4% in the first three quarters of 2004. Instead, the Companyshould have used the "interest method," which requiresthat the effective interest expense that will be incurred overthe life of increasing rate debt instruments be expensed, whichwould have resulted in the use of an effective annual interestrate of 4.5% on the exchangeable debentures in all periods. Theerror resulted in the understatement of the liabilities, interestexpense and total expenses and the overstatement of profit beforeincome taxes and net profit for the year ended December 31, 2003.In addition, the Company has corrected other immaterial itemsrelating to the allowance for doubtful accounts, litigationreserves, accrued compensation and prepaid expenses. As a resultof the restatement, the amount of the formula-based C.E.O.compensation has been recomputed. The overpayment is being repaidin 2005. The Company has restated its Consolidated BalanceSheets, Consolidated Statements of Operations, ConsolidatedStatements of Cash Flows and Consolidated Statements ofShareholders’ Equity as well as Notes 1, 2, 7, 10, 11, 16,and 18 of Notes to Consolidated Financial Statements for 2003 toreflect the restatement for the matters described above. See Note1(p) of Notes to Consolidated Financial Statements for furtherdiscussion.

In accordance with the rules ofthe Securities and Exchange Commission, the affected items of theForm 10-K, Items 6, 7 and 8 of Part II and Item 11 of Part IIIare being amended and restated in their entirety. Except asdescribed above, no other amendments are being made to the Form10-K. This Form 10-K/A does not reflect events occurring afterMarch 11, 2004 or substantively modify or update the disclosurecontained in the From 10-K in any way other than as required toreflect the amendments discussed above.

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TABLE OF CONTENTS 

| Item Number |                                                                                                     | Page   |
|-------------|----------------------------------------------------------------------------------------------------------|--------|
| PART 1      |                                                                                                     |   |
| 1.          | Business                                                                                                 | 3      |
| 2.          | Properties                                                                                               | 17     |
| 3.          | Legal Proceedings                                                                                        | 17     |
| 4.          | Submission of Matters        to a Vote of Security Holders                                               | 18     |
|        |                                                                                                     |   |
| PART II     |                                                                                                     |   |
| 5.          | Market for the        Registrant’s Common Equity and Related Stockholder        Matters             | 19     |
| 6.          | Selected Financial        Data                                                                           | 21     |
| 7.          | Management’s        Discussion and Analysis of Financial Condition and        Results of Operations | 23     |
| 7a.         | Quantitative and        Qualitative Disclosures About Market Risk                                        | 33     |
| 8.          | Financial Statements        and Supplementary Data (54 – 83)                                        | 35     |
| 9.          | Changes in and        Disagreements with Accountants and Financial Disclosure                            | 35     |
| 9a.         | Controls and        Procedures                                                                           | 35     |
|        |                                                                                                     |   |
| PART III    |                                                                                                     |   |
| 10.         | Directors and        Executive Officers of the Registrant                                                | 37     |
| 11.         | Executive Compensation                                                                                   | 42     |
| 12.         | Security Ownership of        Certain Beneficial Owners and Management                                    | 48     |
| 13.         | Certain Relationships        and Related Transactions                                                    | 50     |
| 14.         | Principal Accounting        Fees and Services                                                            | 51     |
|        |                                                                                                     |   |
| PART IV     |                                                                                                     |   |
| 15.         | Exhibits, Financial        Statement Schedules, and Reports on Form 8-K                                  | 52     |
|        |                                                                                                     |   |
|        | Signatures                                                                                               | 53     |
|        | Certifications                                                                                           |   |

 

 

 

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**PART I**

**Item 1. BUSINESS**

Oppenheimer Holdings Inc., formerly calledFahnestock Viner Holdings Inc., prior to that called E.A. VinerHoldings Limited and immediately prior to that called GoldaleInvestments Limited (the "Company"), maintains itsregistered office and principal place of business at 20 EglintonAvenue West, Suite 1110, Toronto, Ontario Canada M4R 1K8 and itstelephone number is (416) 322-1515.

The Company was originally incorporatedunder the laws of British Columbia. Pursuant to its Certificateand Articles of Continuation effective October 12, 1977, theCompany's legal existence was continued under the BusinessCorporation Act (Ontario) as if it had been incorporated as anOntario corporation.

The Company is a holding company andcarries on no active business. It owns, directly or throughintermediate subsidiaries, Oppenheimer & Co. Inc. (formerlycalled Fahnestock & Co. Inc. and prior to that called EdwardA. Viner & Co., Inc.), a New York corporation("Oppenheimer"); Freedom Investments, Inc., a Delawarecorporation ("Freedom"); Oppenheimer Asset ManagementInc. (formerly called Hudson Capital Advisors Inc.), a New Yorkcorporation ("OAM"); Evanston Financial, Inc., a NewYork corporation ("Evanston"); since September 17,2001, Josephthal & Co. Inc., a New York corporation("Josephthal"); and since November 9, 2001, PrimeCharter, Ltd., a Delaware corporation ("Prime").Oppenheimer, OAM and Freedom are sometimes collectively referredto as the "Operating Subsidiaries". Through theOperating Subsidiaries, the Company is engaged in the securitiesbrokerage and trading business and offers investment advisory andother related financial services. Oppenheimer and OAM are theprincipal Operating Subsidiaries. Oppenheimer is engaged in thesecurities brokerage business in the United States, operates inToronto, Canada as an International Dealer and, through theagency of local licensed broker-dealers, operates offices inBuenos Aires, Argentina and Caracas, Venezuela. OAM is engaged inthe investment advisory business in the United States. Inaddition, Oppenheimer conducts investment advisory business underthe name Fahnestock Asset Management, a division of Oppenheimer.The business formerly conducted by Josephthal and Prime is nowconducted by Oppenheimer. The private client business acquiredfrom CIBC World Markets Inc. in January 2003 is being conductedby Oppenheimer. The asset management business acquired from CIBCWorld Markets in June 2003 is being conducted by OAM. The Companyoperates a discount brokerage business through Freedom. 

In September 2001, through a wholly-ownedsubsidiary, Oppenheimer acquired 91.6% of the outstanding commonstock of Josephthal Group, Inc. ("Josephthal Group").In October 2001 substantially all of the remaining outstandingstock of Josephthal Group was acquired. The purchase price was $1plus the assumption of liabilities of $23,885,000. JosephthalGroup indirectly owns 100% of Josephthal, formerly a private NewYork-based broker-dealer founded in 1910 with approximately 265financial consultants in 25 offices across the United States atthe time of closing. The acquisition was accounted for by thepurchase method. The accounts of Josephthal were converted toOppenheimer’s system in November 2001. Oppenheimer acted asa clearing agent for Josephthal until December 31, 2001 when theaccounts of Josephthal became accounts of Oppenheimer. Josephthalmade application to withdraw as a broker dealer and suchapplication was approved. Since January 1, 2002, its business hasbeen conducted by 

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Oppenheimer.

In November 2001, through a wholly-ownedsubsidiary, Oppenheimer acquired 100% of the outstanding commonstock of Grand Charter Group Incorporated ("GrandCharter") for a cash consideration of $2,892,000. GrandCharter owns 100% of Prime, formerly a twelve-year-old fullservice securities firm with approximately 110 financialconsultants operating from offices in New York, New York and BocaRaton, Florida. The acquisition was accounted for by the purchasemethod. Effective January 1, 2002, Prime’s accounts becameOppenheimer accounts. Prime ceased to be a broker-dealereffective January 22, 2002 and since January 1, 2002 its businesshas been conducted by Oppenheimer. The business generated by thetwo branches associated with the Prime acquisition was clearedpursuant to an agreement with Bank of New York until November2002 when its client accounts were converted toOppenheimer’s clearing platform.

In March 2002, through Freedom, the Companypurchased the business of BUYandHOLD Securities Corporation andaffiliates for cash consideration of $2,297,000. BUYandHOLD is anon-line brokerage business headquartered in Edison, NJ. Thecombination of the Freedom and BUYandHOLD technology platformsprovides clients with a comprehensive and diversified suite ofonline financial services.****BUYandHOLD operates as adivision of Freedom. The acquisition was accounted for by thepurchase method. 

In May 2002, Oppenheimer Trust Companyreceived a charter as a limited purpose bank domiciled in NewJersey. Oppenheimer Trust Company offers trust services to theclients of Oppenheimer and OAM.

On January 3, 2003, the Company acquiredthe U.S. Private Client Division of CIBC World Markets and onJune 4, 2003 acquired the U.S. Asset Management Division of CIBCWorld Markets for a total consideration of approximately $242million, of which approximately $16 million was paid in cash atclosing from cash on hand and the balance was paid from theproceeds of the issuance of debt instruments. The private clientbusiness is being operated by Oppenheimer and added approximately620 account executives in 18 branches located in the majorfinancial centers of the United States to its business at theclosing date. Client assets of the Private Client Division wereapproximately $30 billion at the closing date. Assets undermanagement in the Asset Management Division were approximately$8.5 billion. The asset management business is being operated byOAM. The acquisition is being accounted for by the purchasemethod. This transaction more than doubles the Company’sretail exposure and asset base.

In January 2003, the Company receivedmonetary damages plus interest in the amount of $21,750,000,pursuant to an award by a National Association of SecuritiesDealers Dispute Resolution panel against another broker-dealer ina raiding case involving the sales force of First of MichiganCorporation, a company acquired by Oppenheimer in July 1997.During the fourth quarter of 1997, approximately 20% of the"pre-raid" staff of financial consultants were hiredaway in a raid. These proceeds, which were received in January2003, were included in the Company’s results for the firstquarter of 2003.

In January 2004, the Company receivedmonetary damages plus interest in the amount of approximately$2.7 million, pursuant to an award by a National Association ofSecurities Dealers Dispute Resolution Panel against anotherbroker dealer in a raiding 

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case involving financial consultants ofJosephthal & Co. Inc., a company acquired by Oppenheimer inSeptember 2001. These proceeds, which were received in January2004, will be included in the Company’s results for thefirst quarter of 2004.

At December 31, 2003, Oppenheimer employed1,704 full-time registered representatives and approximately1,309 other employees in trading, research, investment banking,investment advisory services, public finance and supportpositions in the United States for Oppenheimer, OAM and Freedom,for a total of approximately 3,013 full-time employees.Oppenheimer and Freedom are broker-dealers registered with theSecurities and Exchange Commission (the "SEC") and inall other jurisdictions where their respective businesses requireregistration. Oppenheimer, in addition to its United Statesoperations, has two additional offices: it conducts business inCaracas and Buenos Aires through local broker-dealers who arelicensed under the laws of Venezuela and Argentina, respectively.

The Operating Subsidiaries are collectivelyengaged in a broad range of activities in the securitiesbrokerage business, including retail securities brokerage,institutional sales, bond trading and investment banking -offering both corporate and public finance services,underwriting, research, market making and investment advisory andasset management services. No material part of the Company'srevenues, taken as a whole, are derived from a single customer orgroup of customers.

Oppenheimer is a member of the New YorkStock Exchange, Inc. ("NYSE"), the National Associationof Securities Dealers, Inc. ("NASD"), the AmericanStock Exchange, Inc. ("AMEX"), the Chicago StockExchange Incorporated ("CSE"), the Chicago BoardOptions Exchange, Inc. ("CBOE"), the New York FuturesExchange, Inc. ("NYFE"), the National FuturesAssociation ("NFA") and the Securities IndustryAssociation ("SIA"). In addition, Oppenheimer hassatisfied the requirements of the Municipal Securities RulemakingBoard ("MSRB") for effecting customer transactions inmunicipal securities. Freedom is a member of the NASD. 

Oppenheimer, which acts as a clearingbroker for Freedom and carries an omnibus account for theBUYandHOLD Division of Freedom, which is itself a self-clearingfirm, is also a member of the Securities Investor ProtectionCorporation ("SIPC"), which provides, in the event ofthe liquidation of a broker-dealer, protection for customers'accounts (including the customer accounts of other securitiesfirms when it acts on their behalf as a clearing broker) held bythe firm of up to $500,000 for each customer, subject to alimitation of $100,000 for claims for cash balances. SIPC isfunded through assessments on registered broker-dealers, whichmay not exceed 1% of a broker-dealer's gross revenues (asdefined); SIPC assessments were a flat fee of $150 in 2003, 2002and 2001. In addition, Oppenheimer has purchased protection fromLloyds of London of an additional $49,500,000 per customer. InFebruary 2004, the protection purchased from Lloyds of London wasincreased to $74,500,000 per customer.

The Company’s internet address iswww.opco.com. The Company makes available free of charge throughits website its annual report on Form 10-K, quarterly reports onForm 10-Q, current reports on Form 8-K, and other SEC filings andall amendments to those reports as soon as reasonably practicableafter such material is electronically filed with or furnished tothe SEC.

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*The following table sets forth theamount and percentage of the Company's revenues from eachprincipal source for each of the following years ended December31.*

|                                              | 2003     | %      | 2002     | %      | 2001     | %      |
|---------------------------------------------------|----------|--------|----------|--------|----------|--------|
| (Dollars in thousands,        except percentages) |
|                                              |     |   |     |   |     |   |
| Commissions                                       | $325,071 | 47%    | $135,747 | 48%    | $122,272 | 47%    |
| Principal        transactions, net                | 136,672  | 20%    | 58,227   | 21%    | 56,374   | 22%    |
| Interest                                          | 42,600   | 6%     | 27,622   | 10%    | 34,309   | 13%    |
| Investment banking                                | 50,623   | 7%     | 22,760   | 8%     | 10,955   | 4%     |
| Advisory fees                                     | 80,550   | 12%    | 26,365   | 9%     | 24,504   | 9%     |
| Other                                             | 54,477   | 8%     | 12,612   | 4%     | 12,847   | 5%     |
|                                              |     |   |     |   |     |   |
| Total revenues                                    | $689,993 | 100%   | $283,333 | 100%   | $261,261 | 100%   |

The Company derives most of its revenuesfrom the operations of its principal subsidiaries, Oppenheimerand OAM. Although maintained as separate entities, the operationsof the Company's brokerage subsidiaries are closely relatedbecause Oppenheimer acts as clearing broker and omnibus intransactions initiated by Freedom. Except as expressly otherwisestated, the discussion below pertains to the operations ofOppenheimer.

COMMISSIONS

A significant portion of Oppenheimer'srevenues is derived from commissions from retail and, to a lesserextent, institutional customers on brokerage transactions inexchange-listed and over-the-counter corporate equity and debtsecurities. Brokerage commissions are charged on both exchangeand over-the-counter transactions in accordance with a schedule,which Oppenheimer has formulated. Often, discounts are granted tocustomers, generally on large trades or to active customers.Oppenheimer also provides a range of services in other financialproducts to retail and institutional customers, including thepurchase and sale of options on the CBOE, the AMEX and otherstock exchanges as well as futures on indexes listed on variousexchanges.

Commission business relies heavily on theservices of financial consultants with good sales productionrecords and good reputations. Competition among securities firmsfor such personnel is intense. Retail clients' accounts areserviced by retail financial advisors (excluding theinstitutional financial consultants referred to below) inOppenheimer's offices. Oppenheimer's institutional clients, whichinclude mutual funds, banks, insurance companies, and pension andprofit-sharing funds, are serviced by institutional financialadvisors. (For a discussion of regulatory matters, see"Regulation".) The institutional department issupported by the equity research department which providescoverage of a number of commercial and industrial as well asemerging growth companies and special situation investments. 

Securities Clearance Activities

Oppenheimer provides a full range ofsecurities clearance services to two non-affiliated securitiesfirms on a fully-disclosed basis. In addition to commissions andservice charges, Oppenheimer derives substantial interest revenuefrom its securities clearing

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activities. See "Interest - SecuritiesBorrowed And Loaned." Oppenheimer provides margin financingfor the clients of the securities firms for which it clears, withthe securities firms guaranteeing the accounts of their clients.Oppenheimer also extends margin credit directly to itscorrespondent firms to the extent that such firms hold securitiespositions for their own account. Because Oppenhimer must rely onthe guarantees and general credit of its correspondent firms,Oppenheimer may be exposed to significant risks of loss if any ofits correspondents or its correspondents' customers are unable tomeet their respective financial commitments. See "RiskManagement."

Commodities

Oppenheimer is a futures commissionmerchant and clears commodities transactions on a number ofcommodities exchanges for its clients that trade commodities.Such client commodity accounts contain significant leverage andthus have a greater than average likelihood of becoming unsecuredor for clients incurring substantial losses, that ultimatelycould result in a loss to the Company.

PRINCIPAL TRANSACTIONS

In the regular course of its business,Oppenheimer takes securities positions as a market maker tofacilitate customer transactions and for investment purposes. Inmaking markets and when trading for its own account, Oppenheimerexposes its own capital to the risk of fluctuations in marketvalue. Trading profits (or losses) depend primarily upon theskills of the employees engaged in market making and positiontaking, the amount of capital allocated to positions insecurities and the general trend of prices in the securitiesmarkets. 

Oppenheimer monitors its risk bymaintaining its securities positions at or below certainpre-established levels. These levels reduce certain opportunitiesto realize profits in the event that the values of suchsecurities increase. However, they also reduce the risk of lossin the event of decreases in such values and result in controlledinterest costs incurred on funds provided to maintain suchpositions. Oppenheimer also attempts to minimize risk withrespect to its principal transactions thereby reducing the needto hold securities inventory positions for even short periods oftime. 

Trading profits or losses depend on (i) theskills of those employees engaged in market-making activities,(ii) the capital allocated to holding positions in securities and(iii) the general trend of prices in the securities markets.Trading as principal requires the commitment of capital andcreates an opportunity for profits or an exposure to risk of lossdue to market fluctuations. Oppenheimer takes both long and shortpositions in those securities in which it makes a market.

*Equities.*Oppenheimer acts as both principal and agent in theexecution of its customers' orders in the over-the-countermarket. Oppenheimer buys, sells and maintains an inventory of asecurity in order to "make a market" in that security.(To "make a market" in a security is to maintain firmbid and offer prices by standing ready to buy or sell round lotsat publicly quoted prices. In order to make a market, it isnecessary to commit capital to buy, sell and maintain aninventory of a security.) In executing customer orders forover-the-counter securities in which it does not make a market,Oppenheimer generally charges a commission and acts as agent orwill act as principal by marking the security up or down in ariskless transaction, working with another firm which is amarket-maker 

 

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acting as principal. However, when the buyor sell order is in a security in which Oppenheimer makes amarket, Oppenheimer normally acts as principal and purchases fromor sells to its customers at a price which is approximately equalto the current inter-dealer market price plus or minus a mark-upor mark-down. The stocks in which Oppenheimer makes a market alsoinclude those of issuers which are followed by Oppenheimer'sresearch department. Oppenheimer makes markets in approximatelyover 650 over-the-counter equitysecurities, and trades securities for its own account, as well asto facilitate customer transactions. As a result of the move todecimal trading in the Nasdaq Stock Market, which began for allstocks in April 2001, narrowing bid-ask spreads and smaller priceincrements are being experienced and are resulting in a decreasein trading revenue earned from the Company’s market makingoperations. Oppenheimer also trades in OTC Bulletin Board andpink sheet securities. These securities are typically moreilliquid, have smaller capitalizations and may involve more riskthan Nasdaq-traded securities. 

*High Yield.*Oppenheimer alsotrades non-investment grade public and private debt securities,as well as distressed securities. Risk of loss upon default bythe borrower is significantly greater with respect to unrated orless than investment grade corporate debt securities than withother corporate debt securities. These securities are generallyunsecured and are often subordinated to other creditors of theissuer. These issuers usually have high levels of indebtednessand are more sensitive to adverse economic conditions, such asrecession or increasing interest rates, than are investment gradeissuers. There is a limited market for some of these securitiesand market quotes are available only from a small number ofdealers. 

Other Trading and Investment Activities

Oppenheimer holds positions in its tradingaccounts in over-the-counter securities and in exchange-listedsecurities in which it does not make a market and may engage fromtime to time in other types of principal transactions insecurities. Oppenheimer has several trading departmentsincluding: a convertible bond department, a risk arbitragedepartment, a corporate bond dealer department, a municipal bonddepartment, a government/mortgage backed securities department, adepartment that underwrites and trades U.S. government agencyissues, taxable corporate bonds, and UIT’s. Thesedepartments continually purchase and sell securities and makemarkets in order to make a profit on the inter-dealer spread.Although Oppenheimer from time to time holds an inventory ofsecurities, more typically, it seeks to match customer buy andsell orders. In addition, Oppenheimer or OAM hold proprietarypositions in equity or fixed income securities in which it maynot act as a dealer. 

The size of its securities positions on anyone day may not be representative of Oppenheimer's exposure onany other day because securities positions vary substantiallybased upon economic and market conditions, allocations ofcapital, underwriting commitments and trading volume. Also, theaggregate value of inventories of stocks which Oppenheimer maycarry is limited by the Net Capital Rule. See "Net CapitalRequirements" and Item 7, "Management's Discussion andAnalysis of Financial Condition and Results of Operations -Liquidity and Capital Resources."

In the case of OAM, it holds investments asgeneral partner in a range of investment partnerships("hedge funds"), which are offered to its qualifiedclients as well as qualified clients of other broker-dealers. 

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Investment Income

Dividends and interest earned on securitiesheld in inventory, cash and cash equivalents and cash andsecurities held in segregated accounts are treated as investmentincome.

Principal transactions with customers aswell as market-making and other trading and investment activitiesaccounted for approximately 20%, 21% and 22%, respectively, ofthe Company’s total revenues for the fiscal years endedDecember 31, 2003, 2002 and 2001, respectively.

Risk Management

*Credit Risk.*Credit riskrepresents the loss that the Company would incur if a client,counterparty or issuer of securities or other instruments held bythe Company fails to perform its contractual obligations. TheCompany follows industry practice to reduce credit risk relatedto various investing and financing activities by obtaining andmaintaining collateral. The Company adjusts margin requirementsif it believes the risk exposure is not appropriate based onmarket conditions. When Oppenheimeradvances funds or securities to a counterparty in a principaltransaction or to a customer in a brokered transaction, it issubject to the risk that the counterparty or customer will notrepay such advances. If the market price of the securitiespurchased or loaned has declined or increased, respectively,Oppenheimer may be unable to recover some or all of the value ofthe amount advanced. A similar risk is also present where acustomer is unable to respond to a margin call and the marketprice of the collateral has dropped. In addition, Oppenheimer'ssecurities positions are subject to fluctuations in market valueand liquidity.

Oppenheimer monitors market risks throughdaily profit and loss statements and position reports. Eachtrading department adheres to internal position limits determinedby senior management and regularly reviews the age andcomposition of its proprietary accounts. Positions and profitsand losses for each trading department are reported to seniormanagement on a daily basis. Oppenheimer may from time to timeattempt to reduce market risk through the utilization of variousderivative securities as a hedge to market exposure. 

In its market-making activities,Oppenheimer must provide liquidity in the equities for which itmakes markets. As a result of this event, Oppenheimer has riskcontainment policies in place, which limit position size andmonitor transactions on a minute-to-minute basis.

In addition to monitoring thecredit-worthiness of its customers, Oppenheimer imposes moreconservative margin requirements than those of the NYSE.Generally, Oppenheimer limits customer loans to an amount notgreater than 65% of the value of the securities (or 50% if thesecurities in the account are concentrated in a limited number ofissues). Particular attention and more restrictive requirementsare placed on more highly volatile securities traded in theNASDAQ market. In comparison, the NYSE permits loans of up to 75%of the value of the equity securities in a customer's account.

*Operational Risk.*Operationalrisk generally refers to the risk of loss resulting from theCompany’s operations, including, but not limited to,improper or unauthorized execution

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and processing of transactions,deficiencies in its operating systems, business disruptions andinadequacies or breaches in its internal control processes. TheCompany operates in diverse markets and it is reliant on theability of its employees and systems to process high numbers oftransactions often within short time frames. In the event of abreakdown or improper operation of systems, human error orimproper action by employees, the Company could suffer financialloss, regulatory sanctions or damage to its reputation. In orderto mitigate and control operational risk, the Company hasdeveloped and continues to enhance policies and procedures thatare designed to identify and manage operational risk atappropriate levels. 

 

*Legal Risk.*Legal risk includesthe risk of non-compliance with applicable legal and regulatoryrequirements. The Company is subject to extensive regulation inthe different jurisdictions in which it conducts its business.The Company has various procedures addressing issues such asregulatory capital requirements, sales and trading practices, useof and safekeeping of customer funds, credit granting, collectionactivities, money-laundering and record keeping. 

For further discussion of risk management,see Item 7A, Quantitative and Qualitative Disclosures aboutMarket Risk.

DISASTER RECOVERY

The events of September 11, 2001heightened the need for comprehensive disaster recovery plans.Disaster recovery plans exist for the Company’s criticalsystems, and redundancies are built into the systems as deemedappropriate. The Company believes that its disaster recoveryprogram, including off-site back-up technology and operationalfacilities, is adequate to handle a reasonable businessdisruption. However, there can be no assurances that a disasterdirectly affecting the Company’s headquarters or itsoperations center would not have a material adverse impact on theCompany. Insurance and other safeguards might only partiallyreimburse the Company for its losses. The Company also usesperiodic self-assessments, internal audit reviews and independentconsultants as a further check on operational risk and exposure. 

 

The Company maintains disaster recoveryprocedures and a site in Edison New Jersey at which it housesback-up facilities to its main operations in New York City.Subsequent to 9/11/01, the Company has substantially upgraded itsinvestment in such procedures and facilities, but there remainssubstantial risk and uncertainty with respect to the efficacy ofsuch planning due to the complications of moving its personneland business to any such facility.

INTEREST

Oppenheimer derives a substantialportion of its interest revenues, and incurs a substantialportion of its interest expenses, in connection with itssecurities borrowed/ securities loaned activity. Oppenheimer alsoearns interest on its securities portfolio, on its operating andsegregated balances, on its margin lending activity and oncertain of its investments. Oppenheimer also incurs interestexpense on its long-term debt, bank loans and free creditbalances in the accounts of customers. 

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*Securities Borrowed/ SecuritiesLoaned.*In connection with both its trading and brokerageactivities, Oppenheimer borrows securities to cover short salesand to complete transactions in which customers have failed todeliver securities by the required settlement date, and lendssecurities to other brokers and dealers for similar purposes.Oppenheimer has an active securities borrowed and lending matchedbook business ("Matched Book"), in which Oppenheimerborrows securities from one party and lends them to anotherparty. When Oppenheimer borrows securities, Oppenheimer providescash to the lender as collateral, which is reflected in theCompany’s financial statements as receivable from brokersand dealers. OPCO earns interest revenues on this cashcollateral. Similarly, when Oppenheimer lends securities toanother party, that party provides cash to Oppenheimer ascollateral, which is reflected in the Company’s financialstatements as payable to brokers and dealers. Oppenheimer paysinterest expense on the cash collateral received from the partyborrowing the securities.

 

*Margin Lending.*Customers’transactions are executed on either a cash or margin basis. In amargin transaction, Oppenheimer extends credit to the customer,collateralized by securities and cash in the customer’saccount, for a portion of the purchase price, and receives incomefrom interest charged on such extensions of credit. Marginlending by Oppenheimer is subject to the margin rules of theBoard of Governors of the Federal Reserve System, NYSE marginrequirements and Oppenheimer’s internal policies. 

The primary source of funds to financecustomers' margin account borrowings are collateralized anduncollateralized bank borrowings, funds generated by lendingsecurities on a cash collateral basis in excess of the amount ofsecurities borrowed and free credit balances in customers'accounts. Free credit balances in customers' accounts, to theextent not required to be segregated pursuant to SEC rules, maybe used in the conduct of Oppenheimer’s business, includingthe extension of margin credit. Subject to applicableregulations, interest is paid by Oppenheimer on most, but notall, of such free credit balances awaiting reinvestment bycustomers. The customer is charged for such margin financing atinterest rates derived from the company’s "base"rate as defined, as well as the brokers’ loan rate, andLIBOR to which is added an additional amount of up to 2%. To theextent that the use of free credit balances reduces borrowings,interest expense is reduced.

In permitting a customer to purchasesecurities on margin, Oppenheimer is subject to the risk that amarket decline could reduce the value of its collateral below theamount of the customer’s indebtedness and that the customermight otherwise be unable to repay the indebtedness. 

     

In addition to monitoring thecreditworthiness of its customers, Oppenheimer also considers thetrading liquidity and volatility of the securities it accepts ascollateral for its margin loans. Trading liquidity and volatilitymay be dependent, in part, upon the market in which the securityis traded, the number of outstanding shares of the issuer, eventsaffecting the issuer and/or securities markets in general, andwhether or not there are any legal restrictions on the sale ofthe securities. Oppenheimer considers all of these factors at thetime it agrees to extend credit to customers and continues toreview its extensions of credit on an ongoing basis. 

The majority of Oppenheimer’smargin loans are made to United States citizens or to 

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corporations which are domiciled in theUnited States. Oppenheimer may extend credit to investors orcorporations who are citizens of foreign countries or who mayreside outside the United States. Oppenheimer believes thatshould such foreign investors default upon their loans and shouldthe collateral for those loans be insufficient to satisfy theinvestors’ obligations, it may be more difficult to collectsuch investors’ outstanding indebtedness than would be thecase if investors were citizens or residents of the UnitedStates. 

Although Oppenheimer attempts tominimize the risk associated with the extension of credit inmargin accounts, there is no assurance that the assumptions onwhich Oppenheimer bases its decisions will be correct or that itis in a position to predict factors or events which will have anadverse impact on any individual customer or issuer, or thesecurities markets in general. 

INVESTMENT BANKING BUSINESS

Oppenheimer offers corporations(primarily middle-market growth companies) a full range offinancial advisory services as well as debt, equity, andconvertible financing services. Products include acquisitionfinancing, private placements and public offerings of debt andequity securities, debt refinancings, restructuring, merger andacquisition and exclusive sales advice, structured financings andsecuritizations. Investment banking activity involves botheconomic and regulatory risks. An underwriter may incur losses ifit is unable to sell the securities it is committed to purchaseor if it is forced to liquidate its commitments at less than theagreed upon purchase price. In addition, under the Securities Actand other laws and court decisions with respect tounderwriters’ liability and limitations on indemnificationof underwriters by issuers, an underwriter is subject tosubstantial potential liability for material misstatements oromissions in prospectuses and other communications with respectto underwritten offerings. Further, underwriting commitmentsconstitute a charge against net capital and Oppenheimer’sunderwriting commitments may be limited by the requirement thatit must, at all times, be in compliance with the Uniform NetCapital Rule 15c3-1 of the SEC.

Oppenheimer intends to continue topursue opportunities for its corporate customers, which mayrequire it to finance and/or underwrite the issuance ofsecurities. Under circumstances where Oppenheimer is required toact as an underwriter or to take a position in the securities ofits customers, Oppenheimer O may assume greater risk than wouldnormally be assumed in its normal trading activity. Oppenheimeralso participates as an underwriter in the syndication of issues managed by other securities firms.

The Company derived 7%, 8% and 4% of itsrevenues from underwriting in 2003, 2002 and 2001, respectively.See "Net Capital Requirements" and Item 7,"Management's Discussion and Analysis of Financial Conditionand Results of Operations - Liquidity and CapitalResources."

INVESTMENT ADVISORY BUSINESS

Oppenheimer(through its Fahnestock Asset Management division) and OAMprovide investment advisory services for a fee to its clients.These equity and debt management service fees are based on thevalue of the portfolio under management. In addition to the 

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management fee, transactions executed forsuch accounts may be effected at standard rates of commission orat discounts from Oppenheimer 's customary commission schedule.

At December 31, 2003, Oppenheimer and OAMhad approximately $9.59 billion under management. The agreementsunder which the portfolios are managed on behalf of institutionsand other investors generally provide for termination by eitherparty at any time.

OAM is abroad-based advisory platform that includes: Investment AdvisoryServices (IAS), Strategic Asset Review (STAR), and PortfolioAdvisory Services (PAS), collectively the consulting services;Oppenheimer Investment Advisors (OIA), core internally managedclient accounts; OMEGA, financial advisor discretionary fee-basedadvisory accounts; and Alternative Investments Group,non-traditional investment strategies within SEC-registeredfunds.

Fahnestock Asset Management and theOMEGA Group provide customized discretionary investmentmanagement services and products to high net worth individualsand families, endowments and foundations and institutions. Theyseek to provide portfolio management, client service and otherfinancial services in a disciplined manner that is tailored tomeet its clients’ particular needs and objectives.

*Importance of InvestmentPerformance.*

The Company believes that investmentperformance is one of the most important factors for the growthof assets under management for a company in the asset managementbusiness. Poor investment performance could impair growth of theCompany’s asset management business because existing clientsmight withdraw funds and the Company’s ability to attractfunds from existing and new clients might diminish.

|   |   |   |   |   |   |   |
|--------|--------|--------|--------|--------|--------|--------|

Investment advisory and administrativecontracts are generally terminable at will or upon relativelyshort notice. Institutional and individual clients can terminatetheir relationships with an asset manager, reduce the aggregateamount of assets under management, or shift their funds to othertypes of accounts with different rate structures for any numberof reasons, including investment performance, changes inprevailing interest rates, loss of key investment managementpersonnel and financial market performance. In a declining stockmarket, the withdrawal of assets from accounts could accelerate. 

Other Business

The Company operates a mortgage bankingbusiness through Evanston Financial Corporation.

ADMINISTRATION AND OPERATIONS

Administration and operations personnel areresponsible for the processing of securities transactions; thereceipt, identification and delivery of funds and securities; themaintenance of internal financial controls; accounting functions;custody of customers' securities; the handling of margin accountsfor Oppenheimer and its correspondents; and general officeservices. Oppenheimer employs approximately380personsin itsadministration and operations departments at its head office,approximately 60 persons in

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its administration and operationsdepartments in Detroit and over 100 administrative and operationspersons located in its branch offices.

There is considerable fluctuation duringany year and from year to year in the volume of transactions Oppenheimer mustprocess. Oppenheimer records transactions and posts its books on a dailybasis. Operations personnel monitor day-to-day operations toassure compliance with applicable laws, rules and regulations.Failure to keep current and accurate books and records can renderOppenheimer liable for disciplinary action by governmental andself-regulatory organizations.

Oppenheimerexecutes its own and certain of its correspondents' securitiestransactions on all United States exchanges of which it is amember and in the over-the-counter market. Oppenheimer clears allof its securities transactions (i.e., it delivers securities thatit has sold, receives securities that it has purchased andtransfers related funds) through its own facilities and throughmemberships in various clearing corporations and custodian banks.

Oppenheimerbelieves that its internal controls and safeguards are adequate,although fraud and misconduct by customers and employees and thepossibility of theft of securities are risks inherent in thesecurities industry. As required by the NYSE and certain otherauthorities, Oppenheimer carries a broker's blanket insurance bond coveringloss or theft of securities, forgery of checks and drafts,embezzlement, fraud and misplacement of securities. This bondprovides coverage of up to an aggregate of $25,000,000 with aself-insurance retention of $250,000.****

COMPETITION

Oppenheimerencounters intense competition in all aspects of the securitiesbusiness and competes directly with other securities firms, asignificant number of which have substantially greater resourcesand offer a wider range of financial services. In addition, therehas recently been increasing competition from other sources, suchas commercial banks, insurance companies and certain majorcorporations that have entered the securities industry throughacquisition, and from other entities. Additionally, foreign-basedsecurities firms and commercial banks regularly offer theirservices in performing a variety of investment banking functionsincluding: merger and acquisition advice, leveraged buy-outfinancing, merchant banking, and bridge financing, all in directcompetition with U.S. broker-dealers. These developments have ledto the creation of a greater number of integrated financialservices firms that may be able to compete more effectively than Oppenheimer forinvestment funds by offering a greater range of financialservices.

Oppenheimerbelieves that the principal factors affecting competition in thesecurities industry are the quality and ability of professionalpersonnel and relative prices of services and products offered. Oppenheimer and itscompetitors employ advertising and direct solicitation ofpotential customers in order to increase business and furnishinvestment research publications in an effort to retain existingand attract potential clients. Many of Oppenheimer 'scompetitors engage in these programs more extensively than does Oppenheimer.

There is substantial commission discountingby broker-dealers competing for institutional and retailbrokerage business. Recently, full service firms have begunoffering on-line trading services to their clients at substantialdiscounts to their regular pricing. 

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Oppenheimerintends to compete in this area, but it is likely to reduceprofitability per transaction, unless offset by highertransaction volume. The continuation of such discounting and anincrease in the incidence thereof could adversely affect Oppenheimer. However,an increase in the use of discount brokerages could be beneficialto Freedom.

REGULATION

The securities industry in the UnitedStates is subject to extensive regulation under both federal andstate laws. The SEC is the federal agency charged withadministration of the federal securities laws. Much of theregulation of broker-dealers has been delegated toself-regulatory organizations ("SRO") such as the NASDand national securities exchanges such as the NYSE and theNational Futures Association. The NYSE has been designated Oppenheimer’sprimary regulator with respect to securities activities and theNational Futures Association has been designated Oppenheimer’sprimary regulator with respect to commodities activities. TheCBOE has been designated Oppenheimer’s primary regulator with respect to options tradingactivities. The NASD has been designated Freedom’s primaryregulator with respect to securities activities. Theseself-regulatory organizations adopt rules (subject to approval bythe SEC or the Commodities Futures Trading Commission("CFTC"), as the case may be) governing the industryand conduct periodic examinations of Oppenheimer 's andFreedom's operations. Securities firms are also subject toregulation by state securities commissions in the states in whichthey do business. Oppenheimer and Freedom are each registered as a broker-dealerin the 50 states and Puerto Rico. Oppenheimer is also registered as an InternationalBroker-Dealer in Canada. 

The regulations to which broker-dealers aresubject cover all aspects of the securities business, includingsales methods, trade practices among broker-dealers, the use andsafekeeping of customers' funds and securities, capital structureof securities firms, record keeping and the conduct of directors,officers and employees. The SEC has adopted rules requiringunderwriters to ensure that municipal securities issuers providecurrent financial information and imposing limitations onpolitical contributions to municipal issuers by brokers, dealersand other municipal finance professionals. Additionallegislation, changes in rules promulgated by the SEC, the CFTCand by self-regulatory organizations, or changes in theinterpretation or enforcement of existing laws and rules maydirectly affect the method of operation and profitability ofbroker-dealers. The SEC, self-regulatory organizations (includingthe NYSE) and state securities commissions may conductadministrative proceedings which can result in censure, fine,issuance of cease and desist orders or suspension or expulsion ofa broker-dealer, its officers, or employees. The principalpurpose of regulating and disciplining broker-dealers is toprotect customers and the securities markets rather than toprotect creditors and shareholders of broker-dealers.

Oppenheimeris also subject to regulation by the SEC and under certain statelaws in connection with its business as an investment advisor andin connection with its research department activities. 

Margin lending by Oppenheimer is subjectto the margin rules of the Board of Governors of the FederalReserve System and the NYSE. Under such rules, Oppenheimer is limitedin the amount it may lend in connection with certain purchases ofsecurities and is also 

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required to impose certain maintenancerequirements on the amount of securities and cash held in marginaccounts. In addition, Oppenheimer may (and currently does) impose more restrictivemargin requirements than required by such rules. See"Customer Lending."

NET CAPITAL REQUIREMENTS

As registered broker-dealers and memberfirms of the NYSE (Oppenheimer) or the NASD (Freedom), the Operating Subsidiariesare subject to certain net capital requirements pursuant to Rule15c3-1 (the "Net Capital Rule") promulgated under theSecurities Exchange Act of 1934, as amended (the "ExchangeAct"). The Net Capital Rule, which specifies minimum netcapital requirements for registered brokers and dealers, isdesigned to measure the general financial integrity and liquidityof a broker-dealer and requires that at least a minimum part ofits assets be kept in relatively liquid form.****

Oppenheimerelects to compute net capital under an alternative method ofcalculation permitted by the Net Capital Rule. (Freedom computesnet capital under the basic formula as provided by the NetCapital Rule.) Under this alternative method, Oppenheimer isrequired to maintain a minimum "net capital", asdefined in the Net Capital Rule, at least equal to 2% of theamount of its "aggregate debit items" computed inaccordance with the Formula for Determination of ReserveRequirements for Brokers and Dealers (Exhibit A to Rule 15c3-3under the Exchange Act) or $250,000, whichever is greater."Aggregate debit items" are assets that have as theirsource transactions with customers, primarily margin loans.Failure to maintain the required net capital may subject a firmto suspension or expulsion by the NYSE, the SEC and otherregulatory bodies and ultimately may require its liquidation. TheNet Capital Rule also prohibits payments of dividends, redemptionof stock and the prepayment of subordinated indebtedness if netcapital thereafter would be less than 5% of aggregate debit items(or 7% of the funds required to be segregated pursuant to theCommodity Exchange Act and the regulations thereunder, ifgreater) and payments in respect of principal of subordinatedindebtedness if net capital thereafter would be less than 5% ofaggregate debit items (or 6% of the funds required to besegregated pursuant to the Commodity Exchange Act and theregulations thereunder, if greater). The Net Capital Rule alsoprovides that the total outstanding principal amounts of abroker-dealer's indebtedness under certain subordinationagreements (the proceeds of which are included in its netcapital) may not exceed 70% of the sum of the outstandingprincipal amounts of all subordinated indebtedness included innet capital, par or stated value of capital stock, paid incapital in excess of par, retained earnings and other capitalaccounts for a period in excess of 90 days.

Net capital is essentially defined in theNet Capital Rule as net worth (assets minus liabilities), plusqualifying subordinated borrowings minus certain mandatorydeductions that result from excluding assets that are not readilyconvertible into cash and deductions for certain operatingcharges. The Net Capital Rule values certain other assets, suchas a firm's positions in securities, conservatively. Among thesedeductions are adjustments (called "haircuts") in themarket value of securities to reflect the possibility of a marketdecline prior to disposition. 

Compliance with the Net Capital Rule couldlimit those operations of the brokerage subsidiaries of theCompany that require the intensive use of capital, such asunderwriting 

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and trading activities and the financing ofcustomer account balances, and also could restrict the Company'sability to withdraw capital from its brokerage subsidiaries,which in turn could limit the Company's ability to pay dividends,repay debt and redeem or purchase shares of its outstandingcapital stock. Under the Net Capital Rule, broker-dealers arerequired to maintain certain records and provide the SEC withquarterly reports with respect to, among other things,significant movements of capital, including transfers to aholding company parent or other affiliate. The SEC and/or theSROs may in certain circumstances restrict the Company'sbrokerage subsidiaries' ability to withdraw excess net capitaland transfer it to the Company or to other of the OperatingSubsidiaries or to expand the Company’s business.

 

**Item 2. PROPERTIES**

The Company maintains offices at 20Eglinton Avenue West, Toronto, Ontario, Canada for generaladministrative activities. Most day-to-day management functionsare conducted at the executive offices of Oppenheimer at 125Broad Street, New York, New York. This office also serves as thebase for most of Oppenheimer 's research, operations and trading and investmentbanking activities, though other offices also have employees whowork in these areas. Investment advisory services are offeredfrom the Company’s office at 200 Park Avenue, New York, NewYork, although other offices also have employees who work in thisarea. Generally, the offices outside of 125 Broad Street, NewYork serve as bases for sales representatives who process tradesand provide other brokerage services in co-operation with Oppenheimer 's NewYork office using the data processing facilities located there.Freedom conducts its business from its offices located in Edison,N.J., where the Company also maintains its disaster recoverysite. Management believes that its present facilities areadequate for the purposes for which they are used and haveadequate capacity to provide for presently contemplated futureuses. 

The Company and its subsidiaries own noreal property, but at December 31, 2003, occupied office spacetotalling approximately 984,000 square feet in 98 locations understandard commercial terms expiring between 2004 and 2014. If anyleases are not renewed, the Company believes it could obtaincomparable space elsewhere on commercially reasonable rentalterms.

 

**Item 3. LEGAL PROCEEDINGS**

The Operating Subsidiaries are involved incertain litigation arising in the ordinary course of business.Management believes, based upon discussion with legal counsel,that the outcome of this litigation will not have a materialeffect on the Company’s financial position. The materialityof legal matters to the Company’s future operating resultsdepends on the level of future results of operations as well asthe timing and ultimate outcome of such legal matters.

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**Item 4. SUBMISSION OF MATTERS TO A VOTEOF SECURITY HOLDERS**

The Class B voting shares (the "ClassB Shares"), the Company's only class of voting securities,are not registered under the Exchange Act and are not required tobe registered. The Class B Shares are owned by fewer than 500shareholders of record. Consequently, the Company is not requiredunder Section 14 of the Exchange Act to furnish proxy solicitingmaterial or an information statement to holders of the Class BShares. However, the Company is required under applicableCanadian securities laws to provide proxy soliciting material,including a management information circular, to the holders ofits Class B Shares.

Pursuant to the Company's Articles ofIncorporation, holders of Class A non-voting shares (the"Class A Shares"), although not entitled to votethereat, are entitled to receive notices of shareholders'meetings and to receive all informational documents required bylaw or otherwise to be provided to holders of Class B Shares. Inaddition, holders of Class A Shares are entitled to attend andspeak at all meetings of shareholders, except class

meetings not including the Class A Shares.

In the event of either a "take-overbid" or an "issuer bid" (as those terms aredefined in the Securities Act (Ontario)) being made for the ClassB Shares and no corresponding offer being made to purchase ClassA Shares, the holders of Class A Shares would have no right underthe Articles of Incorporation of the Company or under anyapplicable statute to require that a similar offer be made tothem to purchase their Class A Shares.

No matters were submitted to the Company'sshareholders during the fourth quarter of the Company's 2003fiscal year.

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**PART II**

**Item 5. MARKET FOR THE REGISTRANT'SCOMMON EQUITY AND RELATED**

**STOCKHOLDER MATTERS**

The Company's Class A Shares are listed andtraded on The New York Stock Exchange (the "NYSE") andThe Toronto Stock Exchange (the "TSX") (trading symbol"OPY"). The Class B Shares are not traded on any stockexchange in Canada or the United States and, as a consequence,there is only limited trading in the Class B shares. The Companydoes not presently contemplate listing the Class B Shares in theUnited States on any national or regional stock exchange or onNASDAQ.

The following tables set forth the high andlow sales prices of the Class A Shares on The Toronto StockExchange and on The New York Stock Exchange. Prices provided arein Canadian dollars or U.S. dollars as indicated and are based ondata provided by The Toronto Stock Exchange and The New YorkStock Exchange.

| Class A        Shares: | TSX         | NYSE           |
|------------------------|-------------|----------------|
|                   |        | HIGH           | LOW | HIGH | LOW |
|                   |        | (Cdn. Dollars) | (U.S. dollars) |
|                   |        |           |   |   |   |
| 2003                   | 1st Quarter | $39.20         | $33.64 | $25.24 | $22.06 |
|                   | 2nd Quarter | $39.75         | $32.90 | $29.85 | $22.25 |
|                   | 3rd Quarter | $40.35         | $35.65 | $29.30 | $25.50 |
|                   | 4th Quarter | $46.11         | $39.00 | $35.10 | $29.15 |
|                   |        |           |   |   |   |
| 2002                   | 1st Quarter | $46.00         | $39.40 | $28.88 | $24.85 |
|                   | 2nd Quarter | $40.56         | $32.65 | $25.70 | $21.26 |
|                   | 3rd Quarter | $35.00         | $31.55 | $23.15 | $20.00 |
|                   | 4th Quarter | $43.86         | $31.45 | $28.45 | $19.77 |

The following table sets forth informationabout the *shareholders of the Company* as at December 31,2003 as set forth in the records of the Company's transfer agentand registrar: 

**Class A Shares:**

| Shareholders of        record having addresses in: | Number        of shares | Percentage | Number        of shareholders |
|----------------------------------------------------|-------------------------|------------|-------------------------------|
| Canada                                             | 5,140,988               | 40%        | 168                           |
| United States                                      | 7,677,918               | 60%        | 180                           |
| Other                                              | 614                     | -          | 6                             |
|                                               |                    |       |                          |
| Total issued and        outstanding                | 12,819,520              | 100%       | 354                           |

 

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**Class B Shares**

| Shareholders of        record having addresses in: | Number        of shares | Percentage | Number        of shareholders |
|----------------------------------------------------|-------------------------|------------|-------------------------------|
| Canada (1)                                         | 97,813                  | 98%        | 116                           |
| United States                                      | 1,739                   | 2%         | 67                            |
| Other                                              | 128                     | -          | 3                             |
|                                               |                    |       |                          |
| Total issued and        outstanding                | 99,680                  | 100%       | 186                           |

(1) The Company has been informed that50,975 Class B shares held by Phase II Financial Limited, anOntario corporation, are beneficially owned by A.G. Lowenthal,Chairman, CEO and a Director of the Company, a U.S. citizen andresident. See Item 12, "Security Ownership of CertainBeneficial Owners and Management".

*Dividends*

The following table sets forth thefrequency and amount of any cash dividends declared on theCompany’s Class A and Class B Shares for the fiscal yearsended December 31, 2003 and 2002.

| Type      | Declaration date | Record date       | Payment date      | Amount per share |
|-----------|------------------|-------------------|-------------------|------------------|
| Quarterly | January 24, 2002 | February 8, 2002  | February 22, 2002 | $0.09            |
| Quarterly | April 19, 2002   | May 3, 2002       | May 17, 2002      | $0.09            |
| Quarterly | July 18, 2002    | August 2, 2002    | August 16, 2002   | $0.09            |
| Quarterly | October 18, 2002 | November 8, 2002  | November 22, 2002 | $0.09            |
| Quarterly | January 24, 2003 | February 14, 2003 | February 28, 2003 | $0.09            |
| Quarterly | April 24, 2003   | May 9, 2003       | May 23, 2003      | $0.09            |
| Quarterly | July 24, 2003    | August 8, 2003    | August 22, 2003   | $0.09            |
| Quarterly | October 24, 2003 | November 7, 2003  | November 21, 2003 | $0.09            |
| Quarterly | January 27, 2004 | February 13, 2004 | February 27, 2004 | $0.09            |

Future dividend policy will depend upon theearnings and financial condition of the Operating Subsidiaries,the Company's need for funds and other factors. Dividends may bepaid to holders of Class A Shares and Class B Shares (paripassu), as and when declared by the Company's Board of Directors,from funds legally available therefor.

CERTAIN TAX MATTERS

The following paragraphs summarize certainUnited States and Canadian federal income tax considerations inconnection with the receipt of dividends paid on the Class A andClass B Shares of the Company. These tax considerations arestated in brief and general terms and are based on United Statesand Canadian law currently in effect. There are other potentiallysignificant United States and Canadian federal income taxconsiderations and state, provincial or local income taxconsiderations with respect to ownership and disposition of theClass A and Class B Shares which are not discussed herein. Thetax considerations relative to ownership and disposition of theClass A and Class B Shares may vary from taxpayer to taxpayerdepending on the taxpayer's particular status. Accordingly,prospective purchasers should consult with their tax advisorsregarding tax considerations, which may apply to the particularsituation.

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United States Federal Income TaxConsiderations

Dividends on Class A and Class B Sharespaid to citizens or residents of the U.S. or to U.S. corporations(including any Canadian federal income tax withheld) will besubject to U.S. federal income taxation as qualified dividends tothe extent paid out of the Company’s earnings and profits,determined under U.S. tax principles, subject to tax at 15%. Suchdividends will not be eligible for the deduction for dividendsreceived by corporations (unless such corporation owns by voteand value at least 10% of the stock of the Company, in which casea portion of such dividend may be eligible for such exclusion).

U.S. corporations, U.S. citizens and U.S.residents will generally be entitled, subject to certainlimitations, to a credit against their U.S. federal income taxfor Canadian federal income taxes withheld from such dividends.Taxpayers may claim a deduction for such taxes if they do notelect to claim such tax credit. No deduction for foreign taxesmay be claimed by an individual taxpayer who does not itemizedeductions. Because the application of the foreign tax creditdepends upon the particular circumstances of each shareholder,shareholders are urged to consult their own tax advisors in thisregard. 

Canadian Federal Income Tax Considerations

Dividends paid on Class A and Class BShares held by non-residents of Canada will generally be subjectto Canadian withholding tax. This withholding tax is levied atthe basic rate of 25%, although this rate may be reduced by theterms of any applicable tax treaty. The Canada - U.S. tax treatyprovides that the withholding rate on dividends paid to U.S.residents on Class A and Class B Shares is generally 15%.

Normal Course Issuer Bid

On July 8, 2003, the Company announced thatduring the year commencing July 10, 2003 it intended to purchaseup to 636,000 Class A Shares by way of a Normal Course Issuer Bidthrough the facilities of The Toronto Stock Exchange and/or TheNew York Stock Exchange, representing approximately 5% of theoutstanding Class A Shares. In fiscal 2003, through a NormalCourse Issuer Bid, which expired July 8, 2003, the Companypurchased 25,700 Class A Shares at an average cost of $22.76 pershare. The Company did not purchase any Class A Shares in 2003under the current Normal Course Issuer Bid, which expires July 9,2004. Any shares purchased by the Company pursuant to the NormalCourse Issuer Bid will be cancelled. The Company may, at itsoption, apply to extend the program for an additional year.

**Item 6. SELECTED FINANCIAL DATA**

The following table presents selectedfinancial information derived from the audited consolidatedfinancial statements of the Company for the five years endedDecember 31, 2003. The selected financial information should beread in conjunction with, and is qualified in its entirety byreference to, the Consolidated Financial Statements and notesthereto included elsewhere in this report. In 2003, the Companypurchased the U.S. private client and asset management divisionsof CIBC World Markets. The 2003 amounts include the assets andliabilities and operating results of the private client divisionfor the entire year and the assets and liabilities and operatingresults of the asset management division as of and subsequent toJune 4, 2003. In 2002, the Company 

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purchased the business of BUYandHOLDSecurities Corporation. The 2002 amounts include the assets andliabilities and operating results of BUYandHOLD as of andsubsequent to the period after March 12, 2002. In 2001, theCompany purchased Josephthal and Prime. The 2001 amounts includethe assets and liabilities and operating results of Josephthaland Prime as of and subsequent to the period after September 17,2001 and November 9, 2001, respectively. See also Item 1,"Business" and Item 7, "Management’sDiscussion and Analysis of Financial Condition and Results ofOperations".

As discussed in Note 1(p) tothe consolidated financial statements, the Company has restatedits financial statements for the year ended December 31,2003.

|                                                                     | Restated

2003 | 2002       | 2001       | 2000       | 1999       |   |
|--------------------------------------------------------------------------|----------------|------------|------------|------------|------------|--------|
| (In thousands of U.S. dollars        except per share and share amounts) |           |
| Revenue                                                                  | $689,993       | $283,333   | $261,261   | $316,499   | $279,111   |   |
| Net        profit                                                        | $28,696        | $9,321     | $19,150    | $40,901    | $27,390    |   |
| Net        profit per share (1)                                          |           |       |       |       |       |   |
| -        basic                                                           | $2.26          | $0.75      | $1.55      | $3.38      | $2.19      |   |
| -        diluted                                                         | $1.65          | $0.73      | $1.50      | $3.29      | $2.17      |   |
| Total        assets                                                      | $1,709,480     | $1,031,226 | $710,275   | $697,482   | $766,528   |   |
| Total        current liabilities                                         | $1,194,859     | $783,590   | $468,580   | $475,682   | $579,141   |   |
| Subordinated        indebtedness,                                        |           |       |       |       |       |   |
| including        current portion                                         | -              | -          | -          | -          | $30        |   |
| Total        long term liabilities                                       | $234,785       | -          | -          | -          | -          |   |
| Cash        dividends per Class A                                        |           |       |       |       |       |   |
| Share        and Class B share                                           | $0.36          | $0.36      | $0.36      | $0.31      | $0.28      |   |
| Shareholders'        equity                                              | $279,836       | $247,636   | $241,695   | $221,800   | $187,388   |   |
| Book        value per share (1)                                          | $21.66         | $19.82     | $19.43     | $18.34     | $15.30     |   |
| Number        of shares of capital stock outstanding                     | 12,919,200     | 12,496,687 | 12,436,765 | 12,090,649 | 12,247,249 |   |
|                                                                     |           |       |       |       |       |   |
|                                                                     |           |       |       |       |       |   |

> 
The Class A Shares and Class B        Shares are combined because they are of equal rank for        purposes of dividends and in the event of a distribution        of assets upon liquidation, dissolution or winding up. 

22

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**Item 7. MANAGEMENT'S DISCUSSION ANDANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS**

The Company’s financial statementshave been prepared in accordance with accounting principlesgenerally accepted in the United States of America. The followingdiscussion should be read in conjunction with the consolidatedfinancial statements and notes thereto which appear elsewhere inthis annual report. 

As discussed in Note 1(p) tothe consolidated financial statements, the Company has restatedits financial statements for the year ended December 31,2003.

Critical Accounting PoliciesThe Company’s accounting policies are essential tounderstanding and interpreting the financial results reported inthe consolidated financial statements. The significant accountingpolicies used in the preparation of the Company’sconsolidated financial statements are summarized in note 1 tothose statements. Certain of those policies are considered to beparticularly important to the presentation of the Company’sfinancial results because they require management to makedifficult, complex or subjective judgments, often as a result ofmatters that are inherently uncertain. The following is adiscussion of these policies.

Valuation of Securities and Other AssetsSubstantially all financial instruments are reflected in theconsolidated financial statements at fair value or amountsthat approximate fair value. These include cash equivalents;deposits with clearing organizations; securities owned;and securities sold but not yet purchased.  Whereavailable, the Company uses prices from independentsources such as listed market prices, or broker or dealerprice quotations. In addition, even where the value ofa security is derived from an independent marketprice or broker or dealer quote, certain assumptions may berequired to determine the fair value.For instance, the Company generally assumes thatthe size of positions in securities that the Companyholds would not be largeenough to affect the quoted price of thesecurities if the Company were to sell them, and that anysuch sale would happen in an orderly manner. However, theseassumptions may be incorrect and the actual value realized upondisposition could be different from the current carrying value. 

Intangible Assets and GoodwillGoodwill represents the excess costof a business acquisition over the fair value ofthe net assets acquired. SFAS No. 142,"Goodwill and Other Intangible Assets," providesthat goodwill is no longer amortized and the value ofidentifiable intangible assets must be amortized over theiruseful lives, unless the asset is determined to have anindefinite useful life. Goodwill relates to theacquisitions of Oppenheimer, First of Michigan CapitalCorporation, Grand Charter Group Incorporated, Josephthal &Co. Inc. and the Oppenheimer division and has been allocated tothe private client reporting unit pursuant to SFAS No. 142.The Company obtained an independent valuation of assets acquiredand liabilities assumed with respect to the acquisition of theOppenheimer division in 2003. This valuation involved significantestimates, which were based on historical data, revenueprojections and 

23

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industry experience. The Company hasidentified intangible assets relating to customer relationships,which it is amortizing over their useful lives, and trademarksand trade names, which are being evaluated for impairment on atleast an annual basis. The excess cost of the Oppenheimerdivision is being allocated to goodwill.

The Company reviews its goodwillon at least an annual basis in order todetermine whether its value is impaired.Goodwill is impaired when the carrying amount ofthe reporting unit exceeds the implied fair value of thereporting unit.  In estimating the fair value ofthe reporting unit, the Company uses valuation techniquesbased on multiples of revenues, earnings, book value anddiscounted cash flows similarto models employed in analyzing the purchaseprice of an acquisition target. If the value of the goodwillis impaired, the difference between the value of thegoodwill reflected on the financial statementsand its current fair value is recognized as anexpense in the period in which the impairment occurs.

ReservesThe Company records reserves related tolegal proceedings in  "other payables andaccrued expenses". The determination of the amountsof these reserves requires significant judgment on thepart of management. Management considers manyfactors including, but not limited to: the amount of theclaim; the amount of the loss in the client's account;the basis and validity of the claim; the possibility ofwrong doing on the part of an employee of the Company;previous results in similar cases; and legal precedents andcase law as well as the timing of the resolution of such matters.Each legal proceeding is reviewed with counsel in each accountingperiod and the reserve is adjusted as deemed appropriate bymanagement. Any change in the reserve amount is recordedas a charge to results in that period. The assumptionsof management in determining the estimates of reserves may beincorrect and the actual disposition of a legal proceeding couldbe greater or less than the reserve amount.The Company also records reserves orallowances for doubtful accounts related toreceivables from clients and financial consultants. Client loans are collateralized by securities;however, if there is a decline in the value of thecollateral and the Company cannot obtain additional collateral orcollect on the loan, a reserve is established.  The Companyalso makes loans or pays advances to financialconsultants. Reserves are established on thesereceivables if the financial consultant is no longerassociated with the Company and the receivable has not beenpromptly repaid or if it is determined that it is probablethe amount will not be collected.

The Company also estimates taxes payableand records income tax reserves. These reserves are based onhistoric experience and may not reflect the ultimate liability.The Company monitors and adjusts these reserves as necessary.

Asset management operations

Asset management fees are generallyrecognized over the period the related service is provided basedon the account value at the valuation date per the respectiveasset management agreements. In certain circumstances, the firmis entitled to receive incentive fees when the return on assetsunder management exceeds certain benchmark returns or otherperformance targets. Incentive fees are generally based oninvestment performance over a 12-month period and are not subjectto adjustment 

24

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once the measurement period ends.Accordingly, incentive fees are recognized in the consolidatedstatements of earnings when the measurement period ends. Assetmanagement fees and incentive fees are included in "Advisoryfees" in the consolidated statements of earnings. Assetsunder management are not included as assets of the Company.

Business Environment

The Company is a holding company whoseprincipal subsidiaries are Oppenheimer and OAM. Oppenheimer provides securities brokerage, investment banking,trust and asset management services to its clients from 98offices across the U.S.A. and associated offices in Caracas,Venezuela and Buenos Aires, Argentina. Oppenheimer islicensed to offer brokerage and other financial services in all50 States. Client assets entrusted to the Company as at December31, 2003 totalled approximately $46 billion. The Company providesinvestment advisory services through OAM and Fahnestock AssetManagement, operating as a division of Oppenheimer. TheCompany provides trust services and products through OppenheimerTrust Company. At December 31, 2003, client assets undermanagement by the asset management groups totaled $9.59 billion. Oppenheimer alsoengages in proprietary trading of securities. In addition, theCompany operates a discount brokerage business based in Edison,NJ, through Freedom. At December 31, 2003, the Company employedapproximately 3,013 people, of whom 1,704 were financialconsultants.

The securities industry is highlycompetitive and sensitive to many factors and is directlyaffected by general economic and market conditions, including thevolatility and price level of securities markets; the volume,size, and timing of securities transactions; the demand forinvestment banking services and changes in interest rates, all ofwhich have an impact on commissions, trading and investmentincome as well as on liquidity. In addition, a significantportion of the Company's expenses are relatively fixed and do notvary with market activity. Consequently, substantial fluctuationscan occur in the Company's revenues and net income from period toperiod due to these and other factors.

In addition, the Company faces competitionfrom commercial banks and other sources as these institutionsoffer more investment banking and financial servicestraditionally only provided by securities firms. The effect ofthe consolidation of the securities industry of recent yearsmeans that a variety of financial services companies have mergedto offer a broader spectrum of investment products and suchcompetitors have substantially greater financial resources thanthe Company. The Company is also experiencing increasingregulation in the securities industry, particularly affecting theover-the-counter markets, making compliance with regulations moredifficult and costly. At present, the Company is unable topredict the extent of changes, or the effect on the Company'sbusiness.

Outlook

The Company's long-term plan is to continueto expand existing offices by hiring experienced professionals aswell as through the purchase of operating branch offices fromother broker dealers, thus maximizing the potential of eachoffice and the development of existing trading, investmentbanking, investment advisory and other activities. Equallyimportant is the search for viable acquisition candidates. Asopportunities are presented, it is the long term intention of theCompany to pursue growth

25

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by acquisition where a comfortable matchcan be found in terms of corporate goals and personnel and at aprice that would provide the Company's shareholders withincremental value. In the near term, the Company will not beseeking additional significant acquisitions, but will focus itsattention on the integration of recent acquisitions, includingthe significant acquisition in 2003 of the U.S. private clientand asset management businesses of CIBC World Markets.

Results of Operations

The results of the year ended December31, 2003, compared to the same period of 2002, reflect thechanged face of the Company after the acquisition by the Companyon January 3, 2003 of the U.S. private client business of CIBCWorld Markets and the subsequent acquisition on June 4, 2003 ofthe U.S. asset management business of CIBC World Markets(together, the Oppenheimer divisions). This acquisition more thandoubled the Company’s private client presence, addingapproximately 620 financial consultants in 18 offices, at thedate of closing. The aggregate purchase price was approximatelyU.S. $242 million. The Company began self-clearing substantiallyall of the private client business at the end of May 2003. Untilthat time, CIBC provided operational and administrative servicesto the Company on a transition basis. That arrangement precludedthe attainment of certain operating efficiencies and cost savingsthat became available to the Company post- conversion of theclient accounts to the Company’s clearing platform.

The Company closed on its purchase ofOAM on June 4, 2003. OAM currently manages client assets totalingover U.S. $8.65 billion. The business includes internally managedfunds, alternative investments (including hedge funds) and thirdparty managed high net worth accounts.

The Company’s results weresignificantly impacted by the recent integration of itsacquisition of the Oppenheimer private client division and theclosing of the purchase of OAM. In 2003, expenses were impactedby payments to CIBC through May 2003 for various transitionservices, which the Company utilized during the period. The costsof integration and retention also significantly impacted the 2003results. On May 27, 2003, Oppenheimer assumed clearing andexecution of the business of the Oppenheimer divisions. Therewere client service issues and internal operational difficultiesencountered as a result of the largest conversion of clientaccounts in the Company’s history, which were largelyrectified by the end of the second quarter. The Company continuesto monitor its systems requirements and remains committed to makeimprovements in service and technology. 

The assumption of the clearingfunctions substantially changed the Company’s balance sheetthrough increased client receivables and payables, relatedbroker-dealer stock loans and borrows and bank loans, as well assome increase in inventories carried by the Company toaccommodate the increased size of the business. The Companycontinues to believe that this recent acquisition will transformthe Company and the Company remains confident that operatingmargins will improve over coming quarters as overlapping servicesare eliminated, and integration is completed.

The U.S. economy has continued to pick upmomentum as reflected in growth in fourth quarter GNP. New jobcreation continues to lag and remains an issue for consumerconfidence. Low interest rates, a record trade deficit and arecord federal budget deficit 

26

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have been reflected in a weak U.S. dollar,which is trading at record lows compared to other majorcurrencies. These factors are likely to continue to lead tofavorable U.S. corporate earnings comparisons and continuingstrength in the stock market. Savings rates and favorabledemographics in the United States also provide for stronginvestment flows and favorable conditions for the securitiesindustry.

The following table and discussionsummarizes the changes in the major revenue and expensecategories for the past two years (in thousands of dollars).

|                               | Period to Period Change    |
|------------------------------------|----------------------------|
|                               | Increase (Decrease)        |
|                               | Restated

2003 versus 2002 | 2002 versus 2001 |
|                               | Amount                     | Percentage | Amount | Percentage |
|                               |                       |   |   |   |
| Revenues -                         |                       |   |   |   |
| Commissions                        | 189,324                    | +139% | $13,475 | +11% |
| Principal        transactions, net | 78,445                     | +135% | 1,853 | +3% |
| Interest                           | 14,978                     | +54% | (6,687) | -19% |
| Underwriting fees                  | 27,863                     | +122% | 11,805 | +108% |
| Advisory fees                      | 54,185                     | +206% | 1,861 | +8% |
| Other                              | 41,865                     | +332% | (235) | -2% |
| Total revenues                     | 406,660                    | +144% | 22,072 | +8% |

| Expenses -                         |    |   |      |   |
|------------------------------------|---------|--------|-----------|--------|
| Compensation                       | 265,215 | +156%  | 20,972    | +14%   |
| Clearing and exchanges        fees | 11,127  | +116%  | 3,595     | +60%   |
| Communications                     | 22,461  | +70%   | 8,446     | +36%   |
| Occupancy costs                    | 25,832  | +93%   | 8,539     | +44%   |
| Interest                           | 8,512   | +102%  | (5,692)   | -40%   |
| Other                              | 37,715  | +166%  | 4,907     | +27%   |
| Total expenses                     | 370,862 | +137%  | 40,767    | +18%   |
|                               |    |   |      |   |
| Profit before taxes                | 35,798  | +277%  | (18,695)  | -59%   |
| Income taxes                       | 14,649  | +273%  | (7,092)   | -57%   |
| Net profit                         | $21,149 | +280%  | $(11,603) | -61%   |

 

Fiscal 2003 compared to Fiscal 2002

Results for 2003 reflected both the changedface of the Company following its acquisition activity in 2003and improving economic growth in the U.S., which led to aresurgence of investor participation in the markets. Followingits acquisition on January 3, 2003 of the U.S. Private Clientbusiness of CIBC World Markets, the Company significantlyincreased its private client business in terms of financialconsultants and client assets. The number of financialconsultants increased to 1,704 at December 31, 2003 compared to1,102 at December 31, 2002. Client assets entrusted to theCompany were approximately $46 billion at December 31, 2003compared to approximately $17.8 billion at December 31, 2002. Theacquisition on June 4, 2003 of the U.S. Asset Management businessof CIBC World Markets added new business lines and increasedmanaged assets from 

27

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approximately $869 million at December 31,2002 to approximately $9.59 billion at December 31, 2003.

Total revenues for 2003 were $689,993,000,an increase of 144% over $283,333,000 in 2002. Commission income(income realized in securities transactions for which Oppenheimer acts asagent) increased 139% to $325,071,000 from $135,747,000 in 2002.This increase was primarily the result of the additional businessgenerated by the acquired Oppenheimer branches, as well asimproved market conditions. Revenues from principal transactions(revenues from transactions in which Oppenheimer acts asprincipal in the secondary market trading of over-the-counterequities and municipal, corporate and government bonds) increasedby 135% to $136,672,000 from $58,227,000 in 2002 due to thebusiness generated by the acquired divisions and strongeractivity in the trading of fixed income securities as a result oflower interest rates and higher bond prices in 2003 compared to2002. Investment banking revenues increased by 122% to$50,623,000 from $22,760,000 in 2002, related to increasedparticipation in the issuance of closed-end funds and debtsecurities, particularly as a result of the impact of theacquired Oppenheimer divisions. Advisory fees increased by 206%to $80,550,000 from $26,365,000 in 2002 primarily as a result ofthe acquisition of the U.S. Asset Management business of CIBCWorld Markets in June 2003. In January 2003, the Company wasawarded $21,750,000 in an arbitration award in connection with araiding case involving the sales force of First of MichiganCorporation, a company acquired by the Company in 1997.

Interest income in 2003 was $42,600,000, anincrease of 54% from $27,622,000 in 2002. Restated interestexpense was $16,891,000, an increase of 102% from $8,379,000 in2002. This represents an increase of 36% in net interest revenue(interest revenue less interest expense) in 2003 compared to2002, which can be attributed to an increase in average customermargin balances due to the conversion of the customer accounts ofthe acquired Oppenheimer branches in May 2003 and lower interestrates in 2003 compared to 2002 and partially offset by interestexpense of $7,217,000 on the variable rate exchangeabledebentures issued in January 2003 as part of the purchase priceof the Oppenheimer divisions. 

Restated expenses in 2003 totalled$641,278,000, an increase of 137% compared to $270,416,000 in2002. The increase in expenses can be attributed to theacquisitions of the Oppenheimer divisions in 2003 as well ascontinuing unfavorable legal settlement costs associated withJosephthal & Co. Inc. client accounts, which were acquired in2001. Restated compensation and related expenses in 2003 were$435,025,000, an increase of 156% from $169,810,000 in 2002.Compensation expense has volume-related components and increaseswith increases in commission business conducted in 2003 comparedto 2002, as well as increased retention and severance costs and ageneral increase in staff levels in both acquired branch officesand in head office departments which were required to handle thebusiness volume of the larger entity. Clearing and exchange feesin 2003 were $20,734,000, an increase of 116% from $9,607,000 in2002. These expenses increased in 2003 compared with 2002 withincreased volume and with the increased size of the sales force.In addition, until May, 2003, the business generated from theacquired Oppenheimer branches was being cleared by a third party.The cost of third party clearing is higher than the cost ofclearing trades in-house. Communications expenses in 2003 were$54,527,000, an increase of 70% over $32,066,000 in 2002reflecting additional costs of a larger branch system, after theacquisition of the Oppenheimer divisions. Occupancy costs in 2003were $53,604,000, an increase of 93% 

28

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compared to $27,772,000 in 2002 as a resultof the increased size of the organization with the acquisition ofthe Oppenheimer divisions. The increase in communications,technology and occupancy expenses reflects the additional costsassociated with connecting and housing approximately 55% morefinancial consultants in 16 more branch offices in 2003 comparedto December 31, 2002, before the acquisitions of the Oppenheimerdivisions. During 2003, the Company was able to utilizepreviously underutilized space and was able to reassign employeesto maximize the usage of space. Other expenses were $60,497,000,an increase of 166% over $22,782,000 in 2002. The increaserelates primarily to increased levels of general andadministrative expense due to the larger organization size, aswell as increased bad debt expense and costs of litigation. TheCompany may face additional unfavorable judgments in futureperiods. The Company has used its best estimate to provideadequate reserves to cover litigation losses.

Fiscal 2002 compared to Fiscal 2001

Results for fiscal 2002 reflected continueddifficult conditions in the investment environment. The combinedimpact of rising unemployment levels, adverse import/export flowsand slowing business conditions has overcome the normal impact ofrecord low interest rates and the prospect of lower tax rates toproduce low market volumes and overall declining prices.

Revenues in fiscal 2002 increased comparedto fiscal 2001 by 8% as a result of the acquisitions ofJosephthal and Prime Charter in the latter part of 2001 andBUYandHOLD in March 2002. Net profit declined by 61% in fiscal2002 compared to fiscal 2001 as a result of poor marketconditions and substantial expenses associated with these recentacquisitions, including integration costs of combiningfacilities, severance payments associated with combiningpersonnel and most significantly, costs of litigation for claimswhich preceded the Company’s acquisitions of these entities.

Total revenues for 2002 were $283,333,000an increase of 8% over $261,261,000 in 2001. Commission income(income realized in securities transactions for which the Companyacts as agent) increased 11% to $135,747,000 in 2002 from$122,272,000 in 2001. This increase was the result of theadditional business generated by Josephthal, Prime Charter andBUYandHOLD, which more than offset generally lower commissionlevels in the weaker markets of 2002 compared to 2001. Revenuesfrom principal transactions (revenues from transactions in whichthe Company acts as principal in the secondary market trading ofover-the-counter equities and municipal, corporate and governmentbonds) increased by 3% to $58,227,000 in 2002 from $56,374,000 in2001 due to stronger activity in the trading of fixed incomesecurities as a result of lower interest rates and higher bondprices in 2002 compared to 2001. The Company has reduced thenumber of securities in which it makes markets. It may increaseor decrease this number as conditions warrant. Underwriting feesincreased by 108% to $22,760,000 in 2002 from $10,955,000 in 2001related to increased participation in the issuance of closed-endfunds and debt securities. Demand for these products increased in2002 as investors sought new investment vehicles. Advisory feesincreased by 8% to $26,365,000 in 2002 from $24,504,000 in 2001primarily as a result of the acquisition of the business ofBUYandHOLD in March 2002. BUYandHOLD provides a fee-basedinvesting approach to retail investors.

Interest income in 2002 was $27,622,000, adecrease of 19% from $34,309,000 in 2001. 

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Interest expense was $8,379,000, a decreaseof 40% from $14,071,000 in 2001. This represents a decrease of 5%in net interest revenue (interest revenue less interest expense)in 2002 compared to 2001, which can be attributed to a decreasein average customer margin balances and lower interest rates in2002 compared to 2001. 

Expenses in 2002 totalled $270,416,000, anincrease of 18% compared to $229,649,000 in 2001. The increase inexpenses can be attributed to the acquisitions of Josephthal andPrime Charter in the latter part of 2001 and the business ofBUYandHOLD in March 2002. Compensation and related expenses in2002 were $169,810,000, an increase of 14% from $148,838,000 in2001. Compensation expense has volume-related components andincreases with increases in commission business conducted in 2002compared to 2001, as well as increased retention and severancecosts and a general increase in staff levels in both acquiredbranch offices and in head office departments which were requiredto handle the business volume of the larger entity. Clearing andexchange fees in 2002 were $9,607,000, an increase of 60% from$6,012,000 in 2001. These expenses increased in 2002 comparedwith 2001 with increased volume and with the increased size ofthe sales force. In addition, until November, 2002, the businessgenerated from the former Prime Charter branches was beingcleared by a third party as was the business of BUYandHOLD untilJune, 2002. The cost of third party clearing is higher than thecost of clearing trades in-house. Communications expenses in 2002were $32,066,000, an increase of 36% over $23,620,000 in 2001reflecting additional costs of a larger branch system, after theacquisition of Josephthal and Prime Charter. Occupancy costs in2002 were $27,772,000, an increase of 44% compared to $19,233,000in 2001 as a result of increasing the size of the organizationwith the acquisition of Josephthal and Prime Charter in 2001. Theincrease in communications, technology and occupancy expensesreflects the additional costs associated with connecting andhousing 51% more financial consultants in 15 more branch officesin 2002 compared to September 16, 2001, before the acquisitionsof Josephthal and Prime Charter. Occupancy costs were alsosignificantly impacted by costs associated with underutilizedspace that will be utilized in 2003 and future years by postyear-end acquisitions. Other expenses were $22,782,000, anincrease of 27% over $17,875,000 in 2001. The increase relatesprimarily to increased bad debt expense and costs of litigation.

Liquidity and Capital Resources

Total assets at December 31, 2003increased by approximately 66% from December 31, 2002 dueprimarily to the acquisition of the Oppenheimer divisions and theconversion of the Oppenheimer private client division clientaccounts to the Oppenheimer clearing platform on May 27, 2003.Liquid assets at December 31, 2003 accounted for 88% of totalassets, compared to 98% at December 31, 2002. The acquisitions ofthe Oppenheimer divisions resulted in the addition of fixedassets, intangibles and goodwill, all considered long-term innature. Current assets at December 31, 2003 increased by 50%compared to the previous year-end because of increases in allaspects of the Company’s business with the self-clearing ofthe Oppenheimer divisions business. The new business impactedbroker and customer receivables, stock borrow/stock loanbalances, deposits with clearing organizations, restricted cashand notes receivable. The Company satisfies its need for fundsfrom its own cash resources, internally generated funds,collateralized and uncollateralized borrowings, consistingprimarily of bank loans, and uncommitted lines of credit. Theamount of Oppenheimer 's bank borrowings fluctuates in responseto changes in the level of the Company's securities inventoriesand customer margin debt, changes in

30

___________________________________________________________________

stock loan balances and changes innotes receivable from employees. Oppenheimer has arrangementswith banks for borrowings on an unsecured and on a fullycollateralized basis. At December 31, 2003, $101,619,000 of suchborrowings were outstanding, an increase of over 527% compared tooutstanding borrowings at December 31, 2002. At December 31,2003, the Company had available collateralized anduncollateralized letters of credit of $143,934,000.

In connection with the acquisition ofthe Oppenheimer divisions, the Company issued debentures in theamount of approximately $161 million and a zero coupon promissorynote in the amount of approximately $66 million. The notes to thefinancial statements contain a description of these instruments.The interest due on the debentures is payable semi-annually andis being financed from internally-generated funds. The principalpayments on the zero coupon promissory note is also beingfinanced from internally-generated funds. The Company believesthat the necessary internally-generated funds will be availableto service these obligations from funds generated by normaloperations, including funds generated by the acquired business. 

In connection with the acquisition ofthe Oppenheimer divisions, the Company has arranged a creditfacility in the amount of $50 million with CIBC. In January 2003,the Company borrowed $25 million under this facility and borrowedthe balance in July 2003. The borrowings were used to financebroker notes and are repayable, together with interest at theCIBC U.S. base rate plus 2%, over five years or earlier if anybroker notes become due earlier. The interest and principalrepayments are being made out of internally-generated funds andthe Company believes that the cash flow from funds generated bynormal operations, including funds generated by the acquiredbusiness, will be adequate to enable the Company to meet itsobligations. In accordance with the credit arrangement, theCompany has provided certain covenants to CIBC with respect tothe maintenance of minimum debt/equity ratios and net capital ofOppenheimer. In the Company’s view, the most restrictive ofthe covenants requires that Oppenheimer maintain minimum excessnet capital of $100 million. As at December 31, 2003, the Companywas in compliance with the covenants. The Company does notforesee any difficulties in complying with the covenants.

Management believes that funds fromoperations, combined with the Company's capital base andavailable credit facilities, are sufficient for the Company'sliquidity needs in the foreseeable future.

The Company paid cash dividends to itsshareholders totalling $4,616,000, during 2003, frominternally-generated cash.

During 2003, the Company purchased a totalof 25,700 of its Class A non-voting shares at an average cost of$22.76 per share through the facilities of the New York StockExchange by way of a Normal Course Issuer Bid, using internallygenerated cash. The Company has expressed an intention topurchase up to an additional 636,000 of its shares from time totime until July 9, 2004 from internally generated funds.

Because of the Company's strong financialcondition, size and earnings history, management believesadequate sources of credit would be available to finance highertrading volumes, branch expansion, and major capitalexpenditures, as needed. See factors affecting"forward-looking statements".

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The restated book value of theCompany’s Class A and Class B Shares was $21.66 at December31, 2003, an increase of approximately 9% compared to $19.82 atDecember 31, 2002, based on total outstanding shares of12,919,200 and 12,496,687, respectively.

Contractual and Contingent Obligations

The Company has contractual obligations tomake future payments in connection with non-cancelable leaseobligations, certain retirement plans and debt assumed upon theacquisition of Josephthal. Additional disclosure relating theCompany’s commitments appears in note 12 to the consolidatedfinancial statements.

The following table sets forth thesecontractual and contingent commitments as at December 31, 2003. 

Contractual Obligations

(In millions of dollars)

|                                          | 2004   | 2005   | 2006   | 2007   | Thereafter | Total  |
|-----------------------------------------------|--------|--------|--------|--------|------------|--------|
| Minimum rentals                               | $23    | $21    | $19    | $17    | $68        | $148   |
| Supplemental Executive        Retirement Plan | 1      | -      | -      | -      | -          | 1      |
| Assumed Josephthal        notes               | 4      | 1      | -      | -      | -          | 5      |
| Bank loans                                    | 10     | 10     | 10     | 10     | -          | 40     |
| Debentures                                    | -      | -      | -      | -      | 161        | 161    |
| Zero coupon notes                             | 15     | 15     | 15     | 6      | -          | 51     |
|                                          |   |   |   |   |       |   |
| Total                                         | $53    | $47    | $44    | $33    | $229       | $406   |

 

Inflation

Because the assets of the Company'sbrokerage subsidiaries are highly liquid, and because securitiesinventories are carried at current market values, the impact ofinflation generally is reflected in the financial statements.However, the rate of inflation affects the Company's costsrelating to employee compensation, rent, communications andcertain other operating costs, and such costs may not berecoverable in the level of commissions charged. To the extentinflation results in rising interest rates and has other adverseeffects upon the securities markets, it may adversely affect theCompany's financial position and results of operations.

Newly Issued Accounting Standards

The Financial Accounting Standards Boardissued SFAS No. 146, "Accounting for Costs Associated withExit or Disposal Activities", FIN No. 45,"Guarantor’s Accounting and Disclosure Requirements forGuarantees, Including Indirect Guarantees of Indebtedness ofOthers", FIN No. 46, "Consolidation of VariableInterest Entities", SFAS No. 149, "Amendment ofStatement 133 on Derivative Instruments and HedgingActivities", and SFAS No. 150, "Accounting for CertainFinancial Instruments with Characteristics of both Liabilitiesand Equity". The Company has adopted these statements andinterpretations and their adoption has not had a material impacton its financial results. 

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The Company has reviewed SFAS No. 148,"Accounting for Stock-Based Compensation – Transitionand Disclosure" and has adopted the disclosure provisions,but does not intend to adopt other provisions of this standard atthis time.

Factors Affecting "Forward-LookingStatements"

From time to time, the Company may publish"Forward-looking statements" within the meaning ofSection 27A of the Securities Act of 1933, as amended ( the"Act"), and Section 21E of the Exchange Act or makeoral statements that constitute forward-looking statements. Theseforward-looking statements may relate to such matters asanticipated financial performance, future revenues or earnings,business prospects, projected ventures, new products, anticipatedmarket performance, and similar matters. The Private SecuritiesLitigation Reform Act of 1995 provides a safe harbor forforward-looking statements. In order to comply with the terms ofthe safe harbor, the Company cautions readers that a variety offactors could cause the Company’s actual results to differmaterially from the anticipated results or other expectationsexpressed in the Company’s forward-looking statements. Theserisks and uncertainties, many of which are beyond theCompany’s control, include, but are not limited to: (i)transaction volume in the securities markets, (ii) the volatilityof the securities markets, (iii) fluctuations in interest rates,(iv) changes in regulatory requirements which could affect thecost of doing business, (v) fluctuations in currency rates, (vi)general economic conditions, both domestic and international,(vii) changes in the rate of inflation and the related impact onthe securities markets, (viii) competition from existingfinancial institutions and other new participants in thesecurities markets, (ix) legal developments affecting thelitigation experience of the securities industry, (x) changes infederal and state tax laws which could affect the popularity ofproducts sold by the Company, and (xi) domestic and world events.The Company does not undertake any obligation to publicly updateor revise any forward-looking statements.

 

**Item 7A. QUANTITATIVE AND QUALITATIVEDISCLOSURES ABOUT MARKET RISK**

Risk Management

The Company’s principal businessactivities by their nature involve significant market, credit andother risks. The Company’s effectiveness in managing theserisks is critical to its success and stability. 

As part of its normal business operations,the Company engages in the trading of both fixed income andequity securities in both a proprietary and market-makingcapacity. The Company makes markets in over-the-counter equitiesin order to facilitate order flow and accommodate itsinstitutional and retail customers. The Company also makesmarkets in municipal bonds, mortgage-backed securities,government bonds and high yield bonds.

Market Risk

Market risk generally means the risk ofloss that may result from the potential change in the value of afinancial instrument as a result of fluctuations in interest andcurrency exchange rates and in equity and commodity prices.Market risk is inherent in all types of financial instruments,including both derivatives and non-derivatives. TheCompany’s exposure to market risk arises from its role as afinancial intermediary for its customers’ 

33

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transactions and from its proprietarytrading and arbitrage activities. (See additional discussionunder Risk Management in Item 1).

Operational Risk

Operational risk generally means the riskof loss resulting from improper processing of transactions ordeficiencies in the Company’s operating systems or internalcontrols. With respect to its trading activities, the Company hasprocedures designed to ensure that all transactions areaccurately recorded and properly reflected on the Company’sbooks on a timely basis. With respect to client activities, theCompany operates a system of internal controls designed to ensurethat transactions and other account activity (new accountsolicitation, transaction authorization, transaction processing,billing and collection) are properly approved, processed,recorded and reconciled. The Company has procedures designed toassess and monitor counterparty risk. For a discussion of fundingrisk, see ‘Liquidity and Capital Resources’, above.

Credit Risk

Credit risk arises from non-performance bytrading counterparties, customers and issuers of debt securitiesheld in the Company’s inventory. The Company manages thisrisk by imposing and monitoring position limits, regularlyreviewing trading counterparties, monitoring and limitingsecurities concentrations, marking positions to market on a dailybasis to evaluate and establish the adequacy of collateral, and,with respect to trading counterparties, conducting businessthrough clearing corporations which guarantee performance.Further discussion of credit risk appears in the Notes to theConsolidated Financial Statements, in Item 8.

Legal and Regulatory Risk

Legal and regulatory risk includes the riskof non-compliance with applicable legal and regulatoryrequirements. The Company is subject to extensive regulation inthe different jurisdictions in which it conducts its activities.The Company has comprehensive procedures for addressing issuessuch as regulatory capital requirements, sales and tradingpractices, use of and safekeeping of customer funds andsecurities, granting of credit, collection activities, moneylaundering, and record keeping.

Value-at-Risk 

Value-at-risk is a statistical measure ofthe potential loss in the fair value of a portfolio due toadverse movements in underlying risk factors. In response to theSecurities and Exchange Commission’s market risk disclosurerequirements, the Company has performed a value-at-risk analysisof its trading financial instruments and derivatives. Thevalue-at-risk calculation uses standard statistical techniques tomeasure the potential loss in fair value based upon a one-dayholding period and a 95% confidence level. The calculation isbased upon a variance-covariance methodology, which assumes anormal distribution of changes in portfolio value. The forecastsof variances and co-variances used to construct the model, forthe market factors relevant to the portfolio, were generated fromhistorical data. Although value-at-risk models are sophisticatedtools, their use can be limited as historical data is not alwaysan accurate predictor of future conditions. The Company attemptsto manage its market exposure using other methods, includingtrading authorization limits and concentration limits.

 

34

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*At December 31, 2003 and 2002, theCompany’s value-at-risk for each component of market riskwas as follows (in thousands of U.S. dollars):*

|                           | Fiscal 2003 | As at December 31, |
|--------------------------------|-------------|--------------------|
|                           | High        | Low                | Average | 2003 | 2002 |
|                           |        |               |   |   |   |
| Interest rate risk             | $174        | 132                | $150 | 168 | $150 |
| Equity price risk              | 387         | 369                | 369 | 412 | 336 |
| Diversification        benefit | (86)        | (133)              | (110) | (169) | (18) |
|                           |        |               |   |   |   |
| Total                          | $475        | $368               | $409 | $411 | $468 |

The potential future loss presented by thetotal value-at-risk generally falls within predetermined levelsof loss that should not be material to the Company’s resultsof operations, financial condition or cash flows. The changes inthe value-at-risk amounts reported in 2003 from those reported in2002 reflect changes in the size and composition of theCompany’s trading portfolio at December 31, 2003 compared toDecember 31, 2002, which include a larger position in equities.The Company’s portfolio as at December 31, 2003 includesapproximately $15,781,000 in corporate equities, which areco-related to deferred compensation liabilities and which do notbear any value-at-risk to the Company. Further discussion of riskmanagement appears in Item 7, Management’s Discussion andAnalysis of the Results of Operations and Item 1, RiskManagement.

The value-at-risk estimate has limitationsthat should be considered in evaluating the Company’spotential future losses based on the year-end portfoliopositions. Recent market conditions including increasedvolatility, may result in statistical relationships that resultin higher value-at-risk than would be estimated from the sameportfolio under different market conditions. Likewise, theconverse may be true. Critical risk management strategy involvesthe active management of portfolio levels to reduce market risk.The Company’s market risk exposure is continuously monitoredas the portfolio risks and market conditions change.

 

**Item 8. FINANCIAL STATEMENTS ANDSUPPLEMENTARY DATA**

The information required to be furnished inresponse to this Item is submitted hereinafter following thesignature pages hereto.

**Item 9. CHANGES IN AND DISAGREEMENTSWITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE**

None.

**Item 9A. CONTROLS AND PROCEDURES**

As of the end of the reporting period, anevaluation was carried out under the supervision and with theparticipation of the Company’s management, including itsChief Executive Officer and Chief Financial Officer, of theeffectiveness of the design and operation of the Company’sdisclosure controls and procedures (as defined inRule 13a-15(e) under the Exchange Act). Based upon thatevaluation, the Chief 

35

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Executive Officer and Chief FinancialOfficer concluded that the design and operation of theCompany’s disclosure controls and procedures were effective.No significant changes were made in the Company’s internalover financial reporting during the quarter ended December 31,2003 that have materially affected, or are reasonably likely tomaterially affect, the Company’s internal control overfinancial reporting. 

36

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**PART III**

**Item 10. DIRECTORS AND EXECUTIVEOFFICERS OF THE REGISTRANT**

General

Directors of the Company are electedannually by the holders of the Class B Shares to serve until thenext annual meeting of shareholders or until their successors areappointed. Executive officers are appointed annually by thedirectors or until their successors are appointed. Certaininformation concerning the executive officers and directors ofthe Company as at March 8, 2004 is set forth below.

| Name                | Age    | Positions        held                                                                                                                                                                                                                                                                                                                                                                                                                               |
|---------------------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| John L. Bitove      | 76     | A Director of the        Company since February 1980; Retired executive.
- Member of the Audit, Compensation and        Stock Option and Nominating/Corporate Governance        Committees                                                                                                                                                                                                                                                          |
|                |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| Richard Crystal     | 63     | A Director of the        Company since 1992; Partner Brown Raysman Millstein        Felder & Steiner LLP (law firm) since July 2002, U.S.        counsel to the Company; Partner, Winston & Strawn        (law firm) and predecessor firms from 1985 to July 2002.                                                                                                                                                                          |
|                |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| Albert G. Lowenthal | 58     | Chairman of the Board,        Chief Executive Officer and Director of the Company since        1985; Chairman of the Board, Chief Executive Officer and        Director of Oppenheimer since 1985; prior to 1985, Mr. Lowenthal        was President of Cowen Securities Inc., a New York stock        brokerage firm and a general partner of Cowen & Co.,        a New York stock brokerage firm.                                             |
|                |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| Kenneth W. McArthur | 68     | A Director of the        Company since 1996; President and C.E.O. of Shurway        Capital Corporation ( a private corporation), since        July1993; Senior Vice-President of Bank of Montreal        Investment Counsel between January 1992 and July 1993;        Senior Vice-President of Nesbitt Thomson Inc. between        July 1989 and January 1993.
-        Member of the Audit and Nominating/Corporate Governance        Committees |

37

_____________________________________________________________

 

| Name              | Age    | Positions        held                                                                                                                                                                                                                                                 |
|-------------------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|              |   |                                                                                                                                                                                                                                                                  |
|              |   |                                                                                                                                                                                                                                                                  |
| Antonio Molestina | 40     | A Director of the        Company since 2003; Deputy General Counsel, Canadian        Imperial Bank of Commerce (chartered bank)                                                                                                                                       |
|              |   |                                                                                                                                                                                                                                                                  |
| A. Winn Oughtred  | 61     | A Director of the        Company since 1979; a Director of Oppenheimer        since 1983; Secretary of the Company since June, 1992 and        prior to June, 1991; Partner, Borden Ladner Gervais LLP        (law firm), Canadian counsel to the Company since 1979. |
|              |   |                                                                                                                                                                                                                                                                  |
| Elaine K. Roberts | 52     | President, Treasurer        and a Director of the Company since 1977; Treasurer and a        Director of Oppenheimer since 1983.                                                                                                                                      |
|              |   |                                                                                                                                                                                                                                                                  |
| Richard Venn      | 52     | A Director of the        Company since 2003; Senior Executive Vice-President,        Corporate Development, Canadian Imperial Bank of Commerce        (chartered bank)
-Member of        the Nominating/Corporate Governance Committee                                |
|              |   |                                                                                                                                                                                                                                                                  |
| Burton Winberg    | 79     | A Director of the        Company since 1979; President of Rockport Holdings        Limited (a real estate development company) since 1959. 
- Member of the Audit, Compensation and        Stock Option and Nominating/Corporate Governance        Committees.        |

Section 16(a) Beneficial OwnershipReporting Compliance

Section 16(a) of the Exchange Act requiresthe Company's directors and executive officers, and persons whoown more than ten percent of a registered class of the Company'sequity securities, to file by specific dates with the SEC initialreports of ownership and reports of changes in ownership ofequity securities of the Company. Officers, directors and greaterthan ten percent stockholders are required by SEC regulation tofurnish the Company with copies of all Section 16(a) forms thatthey file. The Company is required to report in this annualreport on Form 10-K any failure of its directors and executiveofficers and greater than ten percent stockholders to file by therelevant due date any of these reports during the precedingfiscal year (or, to the extent not previously disclosed, anyprior fiscal year).

To the Company's knowledge, based solely onreview of copies of such reports furnished to the Company duringthe fiscal year ended December 31, 2003 and representations madeto the Company by such persons, all Section 16(a) filingrequirements applicable to the Company's officers, directors andgreater than ten percent stockholders were complied with. 

38

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DIRECTORS COMPENSATION

From January 1, 2003 to June 30, 2003, theCompany paid its directors an annual retainer fee of $10,000,plus $1,000 for each board or committee meeting attended inperson and $500 for each board or committee meeting attended bytelephone. Commencing July 1, 2003, directors’ fees wereincreased as follows:

| Fees:                                                                              | Effective        

July 1, 2003 |
|------------------------------------------------------------------------------------|---------------------------------|
| Annual retainer for        directors                                               | $15,000                         |
| Fee per meeting        attended in person                                          | $1,500                          |
| Fee per meeting        attended by telephone                                       | $500                            |
| Annual retainer for        committee chairmen                                      | $5,000                          |
| Annual retainer for        lead director                                           | $5,000                          |
| Annual retainer for        members of the Audit Committee, other than the chairman | $2,500                          |

In 2003 the Directors were paid fees forboth board and committee attendance of $195,500 in aggregate.Directors are reimbursed for travel and related expenses incurredin attending board and committee meetings. Directors who are notemployees of the Company and its subsidiaries are also entitledto the automatic grant of stock options under the Company’s1996 Equity Incentive Plan, as amended (the "Plan"),pursuant to a formula set out in the Plan. 

DIRECTORS AND OFFICERS INSURANCE

The Company carries liability insurance forits directors and officers. On November 30, 2003, the Companyrenewed its directors and officers liability insurance for oneyear ending November 30, 2004 at an annual premium rate of$325,750. No part of the insurance premiums were or are to bepaid by the officers and directors. The aggregate insurancecoverage under both policies is limited to $10 million withretention of $2.5 million for the policy years ended November 30,2003 and 2004. 

Under the by-laws of the Company, theCompany is obligated to indemnify the directors and officers ofthe Company and its subsidiaries to the maximum extent permittedby the Business Corporations Act (Ontario). The Company hasentered into indemnity agreements with each of its directorsproviding for such indemnities.

**** 

RESOURCES FOR THE BOARD COMMITTEES

The Board and each of its committees have,under the Company’s Corporate Governance Guidelines, theauthority to retain independent legal, financial or otheradvisors at the expense of the Company.

BOARD COMPOSITION

Pursuant to a Stakeholders Agreement datedDecember 9, 2002 between the Company, CIBC and others, CIBC hasthe right to have two of its designees nominated for election tothe Company’s board. CIBC exercised this right in 2003 andits designees, Mr. A. 

39

_________________________________________________________________

Molestina and Mr. R. Venn, were elected asdirectors of the Company at the May 12, 2003 annual and specialmeeting of shareholders and will serve as directors of theCompany until the termination of the May 17, 2004 annual andspecial meeting of shareholders. CIBC has informed the Companythat it does not wish to exercise this right for the May 17, 2004annual and special meeting of shareholders.

BOARD COMMITTEES

The Board has an Audit Committee, aCompensation and Stock Option Committee and aNominating/Corporate Governance Committee. The following is abrief summary of the responsibilities of these Committees,

***Audit Committee***

*(Messrs. Bitove, McArthur and Winberg(Chair))*

The Board has adopted a written charter forthe Audit Committee, a copy of which is attached to thisManagement Information Circular as Schedule C. The AuditCommittee:

> 
reviews annual, quarterly                and all legally required public disclosure                documents containing financial information that                are submitted to the Board;

reviews the nature, scope                and timing of the annual audit carried out by the                external auditors and reports to the Board;

evaluates the external                auditors' performance for the preceding fiscal                year; reviews their fees and makes                recommendations to the Board;

reviews internal financial                control policies, procedures and risk management                and reports to the Board;

meets with the external                auditors quarterly to review quarterly and annual                financial statements and reports and to consider                material matters which, in the opinion of the                external auditors, should be brought to the                attention of the Board and the shareholders; 

reviews internal audit                activities, meets regularly with internal audit                personnel and reports to the Board;

reviews accounting                principles and practices; 

reviews management reports                with respect to litigation, capital expenditures,                tax matters and corporate administration charges                and reports to the Board;

reviews related party                transactions; 

reviews and approves                changes or waivers to the Company's Code of                Conduct and Business Ethics for Directors,                Officers and Employees; and 

annually reviews this                Charter and recommends and make changes thereto                as required.

All members of the Audit Committee        are independent.

During 2003, the Audit Committee        met 5 times.

***Compensation and Stock OptionCommittee***

*(Messrs. Bitove and Winberg (Chair))*

The Board has adopted a Compensation andStock Option Committee Charter. The Compensation and Stock OptionCommittee:

> 
makes recommendations to                the Board with respect to compensation policy for                the Company and its subsidiaries;

makes recommendations to                the Board with respect to salary, bonus and

40

________________________________________________________

benefits paid and provided                to senior management of the Company;

in accordance with the                provisions of the Company's 1996 Equity Incentive                Plan, authorizes grants of stock options and                recommends modifications to the Plan;

grants certain compensation                awards to senior management of the Company based                on criteria linked to the performance of the                individual and/or the Company;

administers the                Performance-Based Compensation Agreement between                the Company and Mr. A.G. Lowenthal; 

certifies compliance with                the criteria performance-based awards or grants                and 

administers and makes                awards under the Company's Stock Appreciation                Rights Plan.

During 2003 the Committee met 4        times.

(see also "Report of the        Compensation and Stock Option Committee")

 

***Nominating/Corporate GovernanceCommittee***

*(Messrs. Bitove, McArthur (Chair), Vennand Winberg)*

The Board has adopted aNominating/Corporate Governance Committee Charter.

The Nominating/Corporate GovernanceCommittee:

> 
makes recommendations to                the Board with respect to corporate governance;

when necessary, oversees                the recruitment of new Directors for the Company;

recommends nominees for                election or appointment to the Board;

maintains an orientation                program for new directors and oversees the                continuing education needs of Directors;

evaluates Director                performance;

reviews and makes                recommendations with respect to the Company's                Corporate Governance Guidelines;

reviews and approves                governance reports for publication in the                Company's Management Information Circular and                Annual Report on Form 10-K.

Although the Committee was            formed in 2003, it did not have any formal meetings            in 2003. The members of the Committee, as members of            the Board, participated during the year in            discussions and decisions on corporate governance,            the effectiveness of the Board and related matters.            The Committee did meet on February 25, 2004 and has            established a schedule for regular meetings for the            balance of 2004.

 

CODE OF ETHICS

The Company has adopted a Code of Conductand Business Ethics for Directors, Officers and Employees, whichcan be found on its website at www.opco.com. Apaper copy of the Code of Conduct and Business Ethics forDirectors, Officers and Employees can be requested by writing tothe Company at its head office or by making an email request to investorelations@opy.ca.

41

_____________________________________________________________________

**Item 11. EXECUTIVE COMPENSATION**

With respect to the year ended December 31,2003, the Compensation and Stock Option Committee of the Board ofDirectors (the "Committee") was responsible for makingrecommendations for approval by the Board of Directors withrespect to the compensation of the Company’s executiveofficers. The members of this Committee are John L. Bitove andBurton Winberg, each of whom are outside directors of the Companyand have no interlocking relationship with the Company or itssubsidiaries.

As discussed in Note 1(p) tothe consolidated financial statements, the Company has restatedits financial statements for the year ended December 31,2003.

Summary Compensation Table

*The following table sets forth totalannual compensation paid or accrued by the Company to or for theaccount of the Company's chief executive officer and each of thefour most highly paid executive officers of the Company and**Oppenheimer**,the Company’s principal operating subsidiary, other than thechief executive officer, whose total cash compensation for thefiscal year ended December 31, 2003 exceeded $100,000 (the"Named Executives").*

|                                                                             |   | Annual Compensation | Long-term

Compensation |              |   |
|----------------------------------------------------------------------------------|--------|---------------------|-------------------------|-------------------|--------|
| Name        and
Principal                                                        |   |                | Restated                | Other

Annual     |   | Class A Shares

Underlying |   | All Other |
| Occupation                                                                       | Year   | Salary              | Bonus                   | Compensation

(1) |   | Options |   | Compensation

(2) |
|                                                                             |   |                |                    |              |   |   |   |   |
| A.G.        Lowenthal,
(5)                                                       | 2003   | $500,000            | $3,225,368              | $22,000           |   | 150,000 |   | $3,050 |
| Chairman,        CEO,                                                            | 2002   | $480,340            | 0                       | $22,500           |   | 0 |   | $2,475 |
| and        Director of                                                           | 2001   | $480,350            | $497,500                | $18,000           |   | 0 |   | $5,725 |
| the        Company;                                                              |   |                |                    |              |   |   |   |   |
| Chairman        and CEO, and director                                            |   |                |                    |              |   |   |   |   |
| of        Oppenheimer                                                            |   |                |                    |              |   |   |   |   |
|                                                                             |   |                |                    |              |   |   |   |   |
| Thomas        Robinson (4),                                                      | 2003   | $

150,000          | $1,000,000              | 0                 |   | 10,000 |   | $2,820 |
| President        of OAM                                                          |   |                |                    |              |   |   |   |   |
|                                                                             |   |                |                    |              |   |   |   |   |
| Eric        J. Shames,                                                           | 2003   | $290,000            | $700,000                | 0                 |   | 7,500 |   | $3,050 |
| Secretary        and                                                             | 2002   | $290,000            | $75,000                 | 0                 |   | 0 |   | $2,475 |
| General        Counsel of Oppenheimer                                            | 2001   | $290,000            | $100,000                | 0                 |   | 0 |   | $5,725 |
|                                                                             |   |                |                    |              |   |   |   |   |
| E.K.        Roberts,                                                             | 2003   | $200,000            | $300,000                | $22,500           |   | 10,000 |   | 0 |
| President,                                                                       | 2002   | $183,300            | $60,000                 | $22,500           |   | 0 |   | 0 |
| Treasurer        and Director of the                                             | 2001   | $158,000            | $85,000                 | $18,000           |   | 0 |   | 0 |
| Company,                                                                         |   |                |                    |              |   |   |   |   |
| Treasurer        and a                                                           |   |                |                    |              |   |   |   |   |
| director        of Oppenheimer                                                   |   |                |                    |              |   |   |   |   |
| 42

____________________________________________________________________________ |
| Robert        Okin (3)
Executive        Vice President of Oppenheimer            | 2003   | $190,256            | $1,000,000              | 0                 |   | 50,000 |   | $3,050 |

 

> 
Includes Directors’ Fees. See        the table in Item 10, above, for the applicable rates.

This amount represents Company        contributions to the Oppenheimer 401(k) Plan.

Mr. Okin joined Oppenheimer on        January 3, 2003. In addition to the above compensation,        on March 17, 2003 Mr. Okin was awarded 22,222 Class A        Shares, which will be issued on January 3, 2006 and        priced at $22.50, provided that Mr. Okin remains        continuously employed by the Company. The issuance of        these conditionally-issued Class A Shares was confirmed        by shareholders on May 12, 2003.

Mr. Robinson joined OAM on June 4,        2003.

Mr. Lowenthal’s bonus is        formula driven and decreased by $134,955 as a result of        the restatement of the 2003 financial results. Mr.        Lowenthal is repaying this amount.

 

OPTION GRANTS FOR THE YEAR ENDED DECEMBER31, 2003

*The following table sets forth detailsof options granted to the Named Executives during the year endedDecember 31, 2003.*

|          | Number        of Securities Underlying Options/SARs Granted | % of Total        Options/SARs Granted to Employees in Fiscal Year | Exercise price per        share | Expiry date | Grant Date Value |
|---------------|-------------------------------------------------------------|--------------------------------------------------------------------|---------------------------------|-------------|------------------|
|          |                                                        |                                                               |                            |        |             |
| A.G.Lowenthal | 150,000                                                     | 39.8%                                                              | $24.31                          | 1/22/08     | $788,700         |
| E.K. Roberts  | 10,000                                                      | 2.7%                                                               | $24.31                          | 1/22/08     | $52,600          |
| T. Robinson   | 10,000                                                      | 2.7%                                                               | $26.34                          | 7/23/08     | $55,000          |
| E.J. Shames   | 7,500                                                       | 2%                                                                 | $24.31                          | 1/22/08     | $39,400          |
| R. Okin       | 25,000                                                      | 6.6%                                                               | $22.75                          | 4/22/08     | $133,300         |
| R. Okin       | 25,000                                                      | 6.6%                                                               | $26.34                          | 7/22/08     | $137,500         |

 

43

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AGGREGATED OPTION EXERCISES AND YEAR-ENDVALUE TABLE

*The following table sets forthinformation with respect to options exercised during the yearended December 31, 2003 by the Named Executives and as tounexercised options held by them at December 31, 2003:*

|                  |   | Shares      |     |   | Number of securities Underlying unexercised        Options/SARs at fiscal year end |   | Value of unexercised in-the-money Options/        SARs at fiscal year end |
|-----------------------|--------|-------------|----------|--------|------------------------------------------------------------------------------------|--------|---------------------------------------------------------------------------|
|                  |   | Acquired    | Value    |   | exercisable/                                                                       |   | exercisable/                                                              |
| Name                  |   | on exercise | Realized |   | unexercisable                                                                      |   | unexercisable                                                             |
|                  |   |        |     |   |                                                                               |   |                                                                      |
| A.G.        Lowenthal |   | 150,000     | $978,750 |   | 150,000/150,000                                                                    |   | $3,000,750/$1,435,500                                                     |
| T.        Robinson    |   | 0           | 0        |   | 0/10,000                                                                           |   | $0/75,400                                                                 |
| E. J.        Shames   |   | 15,000      | $95,475  |   | 15,000/7,500                                                                       |   | $300,075/$71,775                                                          |
| E.K.        Roberts   |   | 0           | 0        |   | 75,000/10,000                                                                      |   | $1,500,375/$95,700                                                        |
| R. Okin               |   | 0           | 0        |   | 0/50,000                                                                           |   | $0/$466,750                                                               |

 

**REPORT OF THECOMPENSATION AND STOCK OPTION COMMITTEE**

The following report of the Committeediscusses generally the Committee's executive compensationobjectives and policies and their relationship to corporateperformance in 2003. In addition, the report specificallydiscusses the Committee's bases for compensation in 2003 of theCompany's Chief Executive Officer, as well as the other seniorexecutive officers of the Company and Oppenheimer.

***Objectives and Policies***

The Committee's objective is to provide acompetitive compensation program with appropriate incentives forsuperior performance, thereby providing a strong and direct linkbetween corporate performance and compensation. Performance isdefined in several ways, as more fully discussed below, each ofwhich has relevance to the Company's success in the short-term,long-term or both.

The Company's compensation program forsenior executive officers consists of the following key elements:a base salary, an annual bonus, grants of stock options and, inthe case of the Chief Executive Officer, the Performance-BasedCompensation Agreement referred to below.

In arriving at its recommendationsconcerning the specific components of the Company's compensationprogram, the Committee considers certain public information aboutthe compensation paid by a group of comparable public Canadianand U.S. broker-dealers and the relative performance of theCompany as measured by net income levels and earnings per share,among other factors.

The Committee believes that this approachbest serves the interests of shareholders by 

44

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enabling the Company to structurecompensation in a way that meets the requirements of the highlycompetitive environment in which the Company operates, whileensuring that senior executive officers are compensated in amanner that advances both the short and long-term interests ofshareholders.

Compensation for the Company's seniorexecutive officers involves a significant component ofremuneration which is contingent on the performance of both theCompany and the senior executive officer: the variable annualbonus (which permits individual performance to be recognized onan annual basis, and which is based, in significant part, on anevaluation of the contribution made by the officer to corporateperformance) and stock options (which directly relate a portionof compensation to stock price appreciation realized by theCompany’s shareholders).

*Base Salary.*Salaries paid to seniorexecutive officers (other than the Chief Executive Officer) arereviewed annually by the Committee considering recommendationsmade by the Chief Executive Officer to the Committee, based uponthe Chief Executive Officer's assessment of the nature of theposition, and the skills, experience and performance of eachsenior executive officer, as well as salaries paid by comparablecompanies in the Company’s industry. The Committee thenmakes recommendations to the Board with respect to base salaries.

*Annual Bonus.*Bonuses paid to seniorexecutive officers (other than the Chief Executive Officer) arereviewed annually by the Committee considering recommendationsmade by the Chief Executive Officer to the Committee, based uponthe Chief Executive Officer's assessment of the performance ofthe Company and his assessment of the contribution of each seniorexecutive to that performance. The Committee then makesrecommendations to the Board with respect to bonuses.

Senior executive officers, including theChief Executive Officer, of Oppenheimer have the right to electto defer a portion of their annual bonus and performance-basedcompensation under Oppenheimer's Executive Deferred CompensationPlan, a non-qualified unfunded plan. 

*Stock Option Grants.*Under the Plan,as amended, senior executive officers and employees of theCompany and its subsidiaries (other than the Chief ExecutiveOfficer) are granted stock options by the Committee based uponthe recommendations of the Chief Executive Officer and based upona variety of considerations, including the date of the last grantmade to the officer or employee, as well as considerationsrelating to the contribution and performance of the specificoptionee.

***Chief Executive Officer Compensation***

Mr. A.G. Lowenthal, the Chairman of theBoard and the Chief Executive Officer of the Company andOppenheimer, is paid a base salary set by the Committee, plusperformance-based compensation under the Performance-BasedCompensation Agreement referred to below and, at the discretionof the Committee, is eligible for bonuses and grants of stockoptions.

On January 1, 2001, the Company enteredinto a Performance-Based Compensation Agreement (the "2001Comp Agreement") with Mr. Lowenthal, which expires onDecember 31, 2005. The 2001 Comp Agreement was approved by theClass B Shareholders in 2001. The purpose of the 2001 CompAgreement is to set the terms 

45

__________________________________________________________________

under which Mr. Lowenthal'sperformance-based compensation is to be calculated during theterm thereof.

In March of 2003, the Committee establishedperformance goals under the 2001 Comp Agreement entitling Mr.Lowenthal to a Performance Award under the 2001 Comp Agreementfor the restated year 2003 of an aggregate of $3,225,368determined by the application of a formula based on the followingcomponents: the amount by which the closing price of one Class AShare at January 1, 2003, exceeded the closing price of one ClassA Share as at December 31, 2003 multiplied by 200,000 shares; 3%of the amount by which the Company's consolidated profit beforeincome taxes for the year ended December 31, 2003exceeded 15% of and is less than 25% of the Company'sconsolidated shareholders' equity as at December 31, 2002;3.0% percent of the amount by which the Company’sconsolidated net profit for the year ended December 31, 2003 wasgreater than $0 and less than $11,500,000; 4.0% of the amount bywhich the Company’s consolidated net profit for the yearended December 31, 2003 was greater than $11,500,000 and lessthan $23,000,000; and 4.5% of the amount by which theCompany’s consolidated net profit for the year endedDecember 31, 2003 was greater than U.S.$23,000,000 and less than$34,000,000. In March of 2003, the Committee set Mr.Lowenthal’s base salary for 2003 at $500,000.

***U.S. Internal Revenue Code Section162(m)***

The Company is a Canadian taxpayer.However, because Oppenheimer is a U.S. taxpayer, mostcompensation issues are affected by the U.S. Internal RevenueCode of 1986, as amended (the "U.S. Tax Code").

Section 162(m) of the U.S. Tax Codegenerally disallows a tax deduction to public Companys for annualcompensation of over $1,000,000 paid to any of the company'schief executive officer and four other most highly paid executiveofficers (determined as of the end of each fiscal year) unlesssuch compensation constitutes qualified performance-basedcompensation or otherwise qualifies for an exception.

In order to qualify for exemptions underSection 162(m) in 2001, the 2001 Comp Agreement was adopted andapproved by the Class B Shareholders.

To the extent consistent with the Company'sgeneral compensation objectives, the Committee considers thepotential effect of Section 162(m) on compensation paid to theexecutive officers of the Company and its subsidiaries. However,the Committee reserves the right to award and recommend theawarding of nondeductible compensation in any circumstances itdeems appropriate. Further, because of ambiguities anduncertainties as to the application and interpretation of Section162(m) and the regulations issued thereunder, no assurance can begiven, notwithstanding the Company's efforts to qualify, that thecompensation paid by the Company to its executive officers willin fact satisfy the requirements for the exemption from theSection 162(m) deduction limit.

***Members of the Compensation and StockOption Committee***

Burton Winberg — Chairman

John L. Bitove

46

___________________________________________________________________

SHARE PERFORMANCE GRAPH 

The following graph shows changes over thepast five year period of U.S.$100 invested in (1) theCompanys’ Class A Shares, (2) the Standard & Poors 500Index, and (3) the Standard & Poors / Toronto Stock ExchangeComposite Index.

 

|                           |     |     |     |     |     |     |
|--------------------------------|----------|----------|----------|----------|----------|----------|
|                           | **1998** | **1999** | **2000** | **2001** | **2002** | **2003** |
| Oppenheimer                    | 100      | 87       | 163      | 119      | 90       | 136      |
| S&P        500             | 100      | 118      | 90       | 87       | 77       | 126      |
| S&P        / TSX Composite | 100      | 130      | 106      | 86       | 86       | 124      |

47

___________________________________________________________________

**Item 12. SECURITY OWNERSHIP OF CERTAINBENEFICIAL OWNERS AND MANAGEMENT**

As at December 31, 2003, the authorizedcapital of the Company includes an unlimited number of Class AShares of which 12,819,520 Class A Shares were issued andoutstanding and 99,680 Class B Shares, all of which were issuedand outstanding.

The following table sets forth certaininformation regarding the beneficial ownership of, or theexercise of control or discretion over, each class of shares ofthe Company as at March 9, 2004, with respect to (i) each personknown by the Company to beneficially own or exercise control ordiscretion over more than 5% of any class of the Company’sshares, (ii) each of the Company’s directors, (iii) each ofthe Company’s executive officers named in the SummaryCompensation Table and (iv) the directors and officers as agroup.

For purposes of the table, beneficialownership is determined pursuant to Rule 13d-3 of the U.S.Securities Exchange Act of 1934, as amended, pursuant to which aperson or group of persons is deemed to have "beneficialownership" of a class of outstanding shares which suchperson or group has the right to acquire within 60 days afterMarch 9, 2004. The percentage of shares deemed outstanding isbased on 13,322,416 Class A Shares and 99,680 Class B Sharesoutstanding as of March 9, 2004. In addition, for purposes ofcomputing the percentage of Class A Shares owned by each person,the percentage includes all Class A Shares issuable upon exerciseof outstanding options held by such persons within 60 days afterMarch 9, 2004.

There are no outstanding rights to acquirebeneficial ownership of any Class B Shares.

|                                                                                                   | Class A Shares |   | Class B Shares |
|--------------------------------------------------------------------------------------------------------|----------------|--------|----------------|
| Name and Address of        Beneficial Owner                                                            | Shares         | %      |           | Shares | % |
| Private Capital        Management, L.P.
8889 Pelican        Bay Boulevard

Suite 500

Naples, FL 34108 | 4,132,534      | 31.0%  |           | - | - |
| AIC Limited
1375 Kerns Road

Burlington, Canada L7R 4X8                                                | 1,837,800      | 13.8%  |           | - | - |
| Olga Roberts (2)
20 Eglinton Ave. W.

Suite 1110

Toronto, Canada M4R 1K8                              | 324,955        | 2.4%   |           | 44,309 | 44.4% |
| Albert G.        Lowenthal (1)
125 Broad St

New York, NY 10004                                        | 2,751,143      | 20.6%  |           | 50,975 | 51% |
| J.L. Bitove                                                                                            | 56,830         | *      |           | 20 | * |

48

__________________________________________________________

|                                                            | Class A Shares |   | Class B Shares |
|-----------------------------------------------------------------|----------------|--------|----------------|
| Name and Address of        Beneficial Owner                     | Shares         | %      |           | Shares | % |
| R. Crystal (7)                                                  | 13,950         | *      |           | - | - |
| K.W. McArthur (4)                                               | 56,250         | *      |           | - | - |
| A. Molestina                                                    | -              | -      |           | - | - |
| R. Okin (9)                                                     | 103            | *      |           | - | - |
| A.W. Oughtred                                                   | 9,750          | *      |           | - | - |
| E.K. Roberts (3)                                                | 178,594        | 1.3%   |           | 116 | * |
| E.J. Shames (6)                                                 | 47,450         | *      |           | - | - |
| R. Venn                                                         | -              | -      |           | - | - |
| B. Winberg (8)                                                  | 10,650         | *      |           | - | - |
| Executive Officers and        Directors as a group (10 persons) | 3,134,779      | 23.5%  |           | 51,011 | 51% |

________________________________________

* less than 1%

(1) With respect to the Class A Shares, Mr.Lowenthal is the sole general partner of Phase II Financial L.P., a New York limited partnership ("Phase II L.P."),which is the record holder of 2,738,430 Class A Shares. Mr.Lowenthal holds 11,347 Class A Shares through the Company's401(k) plan, and 1,366 Class A Shares directly. With respect tothe Class B Shares, Phase II, an Ontario Company wholly-owned byMr. Lowenthal, is the holder of record of all such shares.

(2) With respect to the Class B Shares,Mrs. Roberts, who is the mother of Elaine Roberts, President ofthe Company, owns 100 Class B Shares directly and 44,209 Class BShares indirectly through Elka Estates Limited, an OntarioCompany ("Elka"), which is wholly-owned by Mrs.Roberts. With respect to the Class A Shares, Mrs. Roberts owns41,900 Class A Shares directly and 283,055 Class A Shares throughElka Estates Limited.

(3) 182,294 Class A Shares are helddirectly. 

(4) 50,000 Class A Shares are held directlyand 6,250 Class A Shares are beneficially owned in respect ofClass A Shares issuable upon exercise of options issued under thePlan.

> 
45,000 Class A Shares are held    directly, 2,450 Class A Shares are held through the    Company’s 401(k) Plan. 

2,700 Class A Shares are held directly    and 11,250 Class A Shares are beneficially owned in respect    of Class A Shares issuable upon exercise of options issued    under the Plan.

49

______________________________________________________________

(8) Includes 6,250 Class A Shares which arebeneficially owned in respect of Class A Shares issuable uponexercise of options issued under the Plan.

(9) 103 Class A Shares are held through theCompany’s 401(k) Plan.

(c) There are no arrangements, known to theCompany, the operation of which may at a subsequent date resultin a change of control of the Company. 

(d) Class A Shares authorized for issuanceunder the Company’s 1996 Equity Incentive Plan (the"Plan"), as amended as at December 31, 2003 are asfollows: All Class A Shares authorized under the Plan have beenapproved by shareholders of the Company.

| Number of securities        to be issued upon exercise of outstanding options | Weighted average        exercise price of outstanding options | Number of securities        remaining available for future issuance under the Plan. |
|-------------------------------------------------------------------------------|---------------------------------------------------------------|-------------------------------------------------------------------------------------|
| 1,884,983                                                                     | $21.81                                                        | 135,948                                                                             |

A description of the Plan appears in Note 8of the Company’s financial statements for the year endedDecember 31, 2003. The Company does not have any warrants orrights outstanding as at December 31, 2003.

 

**Item 13. CERTAIN RELATIONSHIPS ANDRELATED TRANSACTIONS**

During the year 2003 certain of thedirectors, executive officers and senior officers of the Companyand Oppenheimer maintained margin accounts with Oppenheimer inconnection with the purchase of securities (including securitiesof the Company) which margin accounts are substantially on thesame terms, including interest rates and collateral, as thoseprevailing from time to time for comparable transactions withnon-affiliated persons and do not involve more than the normalrisk of collectability. The details of their indebtedness to Oppenheimer on theirmargin accounts is as follows:

| Name and Principal        Position                                   | Largest        Amount Outstanding During 2003 | Amount        Outstanding as at December 31, 2003 | Security for        Indebtedness |
|----------------------------------------------------------------------|-----------------------------------------------|---------------------------------------------------|----------------------------------|
| Albert G. Lowenthal,
Chairman and CEO of the Company and Oppenheimer | $89,330                                       | nil                                               | Margined securities              |
| Robert Okin, Senior        V.P., Operations of Oppenheimer           | $231,132                                      | $231,132                                          | Margined securities              |
| Eric Shames,
Secretary and Chief Legal Officer of Oppenheimer        | $301,488                                      | $293,285                                          | Margined securities              |

50

_________________________________________________________________

**Item 14. PRINCIPAL ACCOUNTING FEES ANDSERVICES**

The Company’s principal accountant isPricewaterhouseCoopers LLP. Audit fees include fees for the auditof the Company’s annual consolidated financial statementsand the review of its quarterly financial statements. Audit feesalso include fees for the audits of the Company’s brokerdealer subsidiaries in compliance with statutory and regulatoryfilings. Other audit-related fees include fees for the audit ofthe Company’s 401(k) plan. In 2002, the Company engagedErnst & Young to provide tax related services.

 

|               | Year ended December 31, |
|--------------------|-------------------------|
|               | 2003                    | 2002 |
|               |                    |   |
| Audit fees         | $827,500                | $546,000 |
| Audit-related fees | 50,000                  | 34,000 |
| Tax fees           | nil                     | Nil |
| All other fees     | nil                     | nil |
|               | $877,500                | $580,000 |

The Audit Committee has the sole authorityand responsibility to nominate independent auditors for electionby shareholders, and to recommend to shareholders thatindependent auditors be removed. The Audit Committee approves allaudit engagement fees and terms as well as approves all non-auditengagements and engagement fees provided by independent auditors.The process begins prior to the commencement of the audit. Thefees described above were 100% pre-approved.

51

__________________________________________________________________

**PART IV**

**Item 15. EXHIBITS, FINANCIAL STATEMENTSCHEDULES AND REPORTS ON**

**FORM 8-K**

| (a)    | (i)    | Financial Statements                                                                                                                                                                                     |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   | The response to this        portion of Item 15 is submitted as a separate section of        this report. See pages F-1 to F-20                                                                           |
|   |   |                                                                                                                                                                                                     |
|   | (ii)   | Financial Statement        Schedules                                                                                                                                                                     |
|   |   | Not Applicable.                                                                                                                                                                                          |
|   |   |                                                                                                                                                                                                     |
|   | (iii)  | Listing of Exhibits                                                                                                                                                                                      |
|   |   | The exhibits which are        filed with this Form 10-K or are incorporated herein by        reference are set forth in the Exhibit Index which        immediately precedes the exhibits to this report. |
|   |   |                                                                                                                                                                                                     |
| (b)    |   | Reports on Form 8-K                                                                                                                                                                                      |
|   |   | None                                                                                                                                                                                                     |
|   |   |                                                                                                                                                                                                     |
| (c)    |   | Exhibits                                                                                                                                                                                                 |
|   |   | See the Exhibit Index        included hereinafter.                                                                                                                                                       |
|   |   |                                                                                                                                                                                                     |
| (d)    |   | Financial Statement        Schedules excluded from the annual report to shareholders                                                                                                                     |
|   |   | None                                                                                                                                                                                                     |

52

______________________________________________________________________

**SIGNATURES**

Pursuant to the requirements of Section 13or 15(d) of the Securities Exchange Act of 1934, the registranthas duly caused this report to be signed on its behalf by theundersigned, thereunto duly authorized, in the City of New York,State of New York, on the 25th day of February, 2005.

OPPENHEIMER HOLDINGS INC.

BY: "E.K. Roberts"

E.K. Roberts, President

 

Pursuant to the requirements of theSecurities Exchange Act of 1934, this report has been signed bythe following persons in the capacities and on the datesindicated.

| Signature                         | Title                                                         | Date              |
|-----------------------------------|---------------------------------------------------------------|-------------------|
|                              |                                                          |              |
| "J.L.        Bitove"    | Director                                                      | February 25, 2005 |
| J.L. Bitove                       |                                                          |              |
|                              |                                                          |              |
| "R. Crystal"            | Director                                                      | February 25, 2005 |
| R. Crystal                        |                                                          |              |
|                              |                                                          |              |
| "A.G.        Lowenthal" | Chairman, Chief        Executive                              | February 25, 2005 |
| A.G. Lowenthal                    | Officer, Director                                             |              |
|                              |                                                          |              |
| "K.W.        McArthur"  | Director                                                      | February 25, 2005 |
| K.W. McArthur                     |                                                          |              |
|                              |                                                          |              |
|                              |                                                          |              |
| "A.W.        Oughtred"  | Secretary, Director                                           | February 25, 2005 |
| A.W. Oughtred                     |                                                          |              |
|                              |                                                          |              |
| "E.K.        Roberts"   | President &        Treasurer,                             | February 25, 2005 |
| E.K. Roberts                      | (Principal Financial        and Accounting Officer), Director |              |
|                              |                                                          |              |
|                              |                                                          |              |
| "B. Winberg"            | Director                                                      | February 25, 2005 |
| B. Winberg                        |                                                          |              |

53

____________________________________________________________________

OPPENHEIMERHOLDINGS INC.

CONSOLIDATEDFINANCIAL STATEMENTS

FOR THE YEAR ENDEDDECEMBER 31, 2003

FOR INCLUSION INTHE COMPANY’S FORM 10-K/A

Amendment No. 1

54

____________________________________________________________________________

INDEX TOCONSOLIDATED FINANCIAL STATEMENTS

OPPENHEIMERHOLDINGS INC.

 

| Management’s        Responsibility for Consolidated Financial Statements                                                            | 56     |
|------------------------------------------------------------------------------------------------------------------------------------------|--------|
|                                                                                                                                     |   |
| Report of        Independent Auditors                                                                                                    | 57     |
|                                                                                                                                     |   |
| Consolidated        Balance Sheets as at December 31, 2003 and 2002                                                                      | 58     |
|                                                                                                                                     |   |
| Consolidated        Statements of Operations for the three years ended
December 31, 2003, 2002 and 2001                                  | 60     |
|                                                                                                                                     |   |
| Consolidated        Statements of Changes in Shareholders’ Equity for        the three years ended December 31, 2003, 2002 and 2001 | 61     |
|                                                                                                                                     |   |
| Consolidated        Statements of Cash Flows for the three years ended
December 31, 2003, 2002 and 2001                                  | 62     |
|                                                                                                                                     |   |
| Notes to        Consolidated Financial Statements                                                                                        | 64     |

 

 

 

 

 

 

 

55

_____________________________________________________________________________

MANAGEMENT'S RESPONSIBILITY FORCONSOLIDATED FINANCIAL STATEMENTS

The accompanying consolidatedfinancial statements of Oppenheimer Holdings Inc. were preparedby management in accordance with accounting principles generallyaccepted in the United States of America, which conform in allmaterial respects with accounting principles generally acceptedin Canada. The significant accounting policies of the Company aredescribed in Note 1 to the consolidated financial statements.

Management is responsible for theintegrity and objectivity of the information contained in theconsolidated financial statements. In order to present fairly thefinancial position of the Company and the results of itsoperations and its cash flows, estimates which are necessary arebased on careful judgments and have been properly reflected inthe consolidated financial statements. Management has establishedsystems of internal control which are designed to providereasonable assurance that assets are safeguarded from loss orunauthorized use and to produce reliable accounting records forthe preparation of financial information.

PricewaterhouseCoopers LLP, theCompany's independent accountants, conduct an audit of theconsolidated financial statements in accordance with auditingstandards generally accepted in the United States of America.Their audit includes a review and evaluation of the Company'ssystems of internal control, and such tests and procedures asthey consider necessary in order to form an opinion as to whetherthe consolidated financial statements are presented fairly inaccordance with accounting principles generally accepted in theUnited States of America.

The Board of Directors isresponsible for ensuring that management fulfills itsresponsibilities for financial reporting and internal control.The Board of Directors is assisted in this responsibility by itsAudit Committee, whose members are not officers of the Company.The Audit Committee meets with management as well as with theindependent auditors to review the internal controls,consolidated financial statements, and the auditors’ report.The Audit Committee reports its findings to the Board ofDirectors for its consideration in approving the consolidatedfinancial statements for issuance to the shareholders.

Management recognizes itsresponsibility for conducting the Company's affairs in compliancewith established financial standards, and applicable laws andregulations, and for maintaining proper standards of conduct forits activities. 

 

"A.G. Lowenthal"

A.G. Lowenthal, Chairman of the Board and Chief Executive Officer 

"E.K. Roberts"

E.K. Roberts,Presidentand Treasurer

February 25, 2004, except as to Note1(p), which is as of February 16, 2005 

56

______________________________________________________________________

 

 

 

 

 

 

 

 

 

 

 

REPORT OFINDEPENDENT AUDITORS

TO THE SHAREHOLDERS OF OPPENHEIMERHOLDINGS INC.

 

In our opinion, the accompanyingconsolidated balance sheets and the related consolidatedstatements of operations, changes in shareholders’ equityand cash flows present fairly, in all material respects, thefinancial position of Oppenheimer Holdings Inc. (the"Company") and its subsidiaries at December 31, 2003and 2002, and the results of their operations and their cashflows for each of the three years in the period ended December31, 2003 in conformity with accounting principles generallyaccepted in the United States of America. These financialstatements are the responsibility of the Company’smanagement. Our responsibility is to express an opinion on thesefinancial statements based on our audits. We conducted our auditsof these statements in accordance with the standards of the Public CompanyAccounting Oversight Board (United States). Those standards requirethat we plan and perform the audits to obtain reasonableassurance about whether the financial statements are free ofmaterial misstatement. An audit includes examining, on a testbasis, evidence supporting the amounts and disclosures in thefinancial statements, assessing the accounting principles usedand significant estimates made by management, and evaluating theoverall financial statement presentation. We believe that ouraudits provide a reasonable basis for our opinion.

As discussed in note 2, in 2002the Company adopted the goodwill provisions of Statement ofAccounting Standards No. 142, "Goodwill and OtherIntangibles".

As discussed in Note 1(p) tothe consolidated financial statements, the Company has restatedits financial statements for the year ended December 31,2003."PricewaterhouseCoopersLLP"

New York, New York

February 25, 2004, except as toNote 1(p), which is as of February 16, 2005 

57

_______________________________________________________________________

 

 

 

| OPPENHEIMER HOLDINGS INC.                                                                               |
|---------------------------------------------------------------------------------------------------------|
| CONSOLIDATED BALANCE SHEETS                                                                             |
| AS AT DECEMBER 31,                                                                                      |
|                                                                                                    |   | Restated

2003 |   | 2002 |
|                                                                                                    | (Expressed in thousands of U.S.        dollars) |
| ASSETS                                                                                                  |   |   |   |   |
| Current assets                                                                                          |   |   |   |   |
| Cash and cash equivalents                                                                               |   | $34,478 |   | $16,115 |
| Restricted deposits (note 3)                                                                            |   | 14,466 |   | 7,440 |
| Deposits with clearing organizations                                                                    |   | 17,858 |   | 3,606 |
| Receivable from brokers and clearing        organizations                                               |   | 278,521 |   | 492,094 |
| Receivable from customers                                                                               |   | 906,487 |   | 392,929 |
| Securities owned, including amounts pledged,        at market value (note 4)                            |   | 95,223 |   | 50,173 |
| Notes receivable (note 15)                                                                              |   | 97,919 |   | 17,012 |
| Other                                                                                                   |   | 63,973 |   | 28,418 |
|                                                                                                    |   | 1,508,925 |   | 1,007,787 |
| Other assets                                                                                            |   |   |   |   |
| Stock exchange seats (approximate market        value                                                   |   |   |   |   |
| $4,968; $6,716 in 2002)                                                                                 |   | 2,994 |   | 2,994 |
| Property, plant and equipment (note 5)                                                                  |   | 23,807 |   | 8,488 |
| Intangible assets, net of amortization                                                                  |   | 35,865 |   | - |
| Goodwill                                                                                                |   | 137,889 |   | 11,957 |
|                                                                                                    |   | 200,555 |   | 23,439 |
|                                                                                                    |   | $1,709,480 |   | $1,031,226 |
| 58

_________________________________________________________________

OPPENHEIMER        HOLDINGS INC. |
| CONSOLIDATED BALANCE SHEETS                                                                             |
| AS AT DECEMBER 31,                                                                                      |
|                                                                                                    |   | Restated

2003 |   | 2002 |
|                                                                                                    | (Expressed in thousands of U.S.        dollars) |

| LIABILITIES        AND SHAREHOLDERS' EQUITY                                                    |   |       |   |       |
|------------------------------------------------------------------------------------------------|--------|------------|--------|------------|
| Current        liabilities                                                                     |   |       |   |       |
| Drafts        payable                                                                          |   | $68,148    |   | $21,653    |
| Bank        call loans (note 6)                                                                |   | 91,500     |   | 16,200     |
| Payable        to brokers and clearing organizations                                           |   | 467,966    |   | 520,743    |
| Payable        to customers                                                                    |   | 406,137    |   | 162,343    |
| Securities        sold, but not yet purchased, at market value (note 5)                        |   | 10,687     |   | 9,606      |
| Accrued        compensation                                                                    |   | 88,864     |   | 27,194     |
| Accounts        payable and other liabilities                                                  |   | 35,450     |   | 23,551     |
| Income        taxes payable                                                                    |   | 67         |   | 2,057      |
| Current        portion of bank loans                                                           |   | 10,119     |   | -          |
| Current        portion of long term debt                                                       |   | 15,921     |   | -          |
|                                                                                           |   | 1,194,859  |   | 783,347    |
| Long        term liabilities                                                                   |   |       |   |       |
| Bank        loans (note 7)                                                                     |   | 29,536     |   | -          |
| Long        term debt (note 7)                                                                 |   | 34,954     |   | -          |
| Exchangeable        debentures (note 7)                                                        |   | 160,822    |   | -          |
| Deferred        income tax                                                                     |   | 9,473      |   | 243        |
|                                                                                           |   | 234,785    |   | 243        |
|                                                                                           |   |       |   |       |
| Commitments        and contingencies (note 12)                                                 |   |       |   |       |
|                                                                                           |   |       |   |       |
| Shareholders'        equity                                                                    |   |       |   |       |
| Share        capital (note 9)                                                                  |   |       |   |       |
| 12,819,520        Class A non-voting shares issued 
(2002-12,397,007 shares issued)            |   | 41,520     |   | 34,338     |
| 99,680        Class B voting shares issued                                                     |   | 133        |   | 133        |
|                                                                                           |   | 41,653     |   | 34,471     |
| Contributed        capital (note 10)                                                           |   | 5,966      |   | 5,028      |
| Retained        earnings                                                                       |   | 232,217    |   | 208,137    |
|                                                                                           |   | 279,836    |   | 247,636    |
|                                                                                           |   | $1,709,480 |   | $1,031,226 |
|                                                                                           |
| The accompanying notes are an        integral part of these consolidated financial statements. |

59

____________________________________________________________________________

| OPPENHEIMER HOLDINGS INC.                                                                      |
|------------------------------------------------------------------------------------------------|
| CONSOLIDATED STATEMENTS OF        OPERATIONS                                                   |
| FOR THE YEAR ENDED DECEMBER 31,                                                                |
|                                                                                           |   | Restated

2003 |   | 2002 |   | 2001 |
|                                                                                           | (Expressed in thousands of U.S.        dollars, except per share amounts) |
| REVENUE:                                                                                       |   |   |   |   |   |   |
| Commissions                                                                                    |   | $325,071 |   | $135,747 |   | $122,272 |
| Principal        transactions, net                                                             |   | 136,672 |   | 58,227 |   | 56,374 |
| Interest                                                                                       |   | 42,600 |   | 27,622 |   | 34,309 |
| Underwriting        fees                                                                       |   | 50,623 |   | 22,760 |   | 10,955 |
| Advisory        fees                                                                           |   | 80,550 |   | 26,365 |   | 24,504 |
| Arbitration        award                                                                       |   | 21,750 |   | - |   | - |
| Other                                                                                          |   | 32,727 |   | 12,612 |   | 12,847 |
|                                                                                           |   | 689,993 |   | 283,333 |   | 261,261 |
|                                                                                           |   |   |   |   |   |   |
| EXPENSES:                                                                                      |   |   |   |   |   |   |
| Compensation        and related expenses                                                       |   | 435,025 |   | 169,810 |   | 148,838 |
| Clearing        and exchange fees                                                              |   | 20,734 |   | 9,607 |   | 6,012 |
| Communications                                                                                 |   | 54,527 |   | 32,066 |   | 23,620 |
| Occupancy        and equipment costs                                                           |   | 53,604 |   | 27,772 |   | 19,233 |
| Interest                                                                                       |   | 16,891 |   | 8,379 |   | 14,071 |
| Other                                                                                          |   | 60,497 |   | 22,782 |   | 17,875 |
|                                                                                           |   | 641,278 |   | 270,416 |   | 229,649 |
|                                                                                           |   |   |   |   |   |   |
| Profit        before income taxes                                                              |   | 48,715 |   | 12,917 |   | 31,612 |
|                                                                                           |   |   |   |   |   |   |
| Income        tax provision (note 10)                                                          |   | 20,019 |   | 5,370 |   | 12,462 |
|                                                                                           |   |   |   |   |   |   |
| Profit        before cumulative effect of a change in accounting        principle              |   | 28,696 |   | 7,547 |   | 19,150 |
| Cumulative        effect of a change in accounting principle (note 2)                          |   | - |   | 1,774 |   | - |
|                                                                                           |   |   |   |   |   |   |
| NET        PROFIT FOR YEAR                                                                     |   | $28,696 |   | $9,321 |   | $19,150 |
|                                                                                           |   |   |   |   |   |   |
| Earnings        per share (notes 2 and 11)                                                     |   |   |   |   |   |   |
| Basic        earnings per share                                                                |   | $2.26 |   | $0.75 |   | $1.55 |
| -        Before the effect of a change in accounting                                           |   |   |   |   |   |   |
| principle                                                                                      |   | $2.26 |   | $0.61 |   | $1.55 |
| -        Cumulative effect of a change in accounting                                           |   |   |   |   |   |   |
| principle                                                                                      |   | - |   | $0.14 |   | - |
|                                                                                           |   |   |   |   |   |   |
| Diluted        earnings per share                                                              |   | $1.65 |   | $0.73 |   | $1.50 |
|                                                                                           |   |   |   |   |   |   |
| The accompanying notes are an        integral part of these consolidated financial statements. |
|                                                                                           |   |   |   |   |   |   |
|                                                                                           |

60

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| OPPENHEIMER HOLDINGS INC.                                              |
|------------------------------------------------------------------------|
| CONSOLIDATED STATEMENTS OF CHANGES        IN SHAREHOLDERS’ EQUITY |
| FOR THE YEAR ENDED DECEMBER 31,                                        |
|                                                                   |   | Restated

2003 |   | 2002 |   | 2001 |
|                                                                   | (Expressed in thousands of U.S.        dollars) |
| SHARE        CAPITAL                                                   |   |   |   |   |   |   |
| Balance        at beginning of year                                    |   | $34,471 |   | $34,257 |   | $29,683 |
| Issue        of Class A Shares                                         |   | 7,767 |   | 3,503 |   | 4,723 |
| Repurchase        of Class A Shares for cancellation                   |   | (585) |   | (3,289) |   | (149) |
|                                                                   |   |   |   |   |   |   |
| Balance        at end of year                                          |   | $41,653 |   | $34,471 |   | $34,257 |
|                                                                   |   |   |   |   |   |   |
| CONTRIBUTED        CAPITAL                                             |   |   |   |   |   |   |
| Balance        at beginning of year                                    |   | $5,028 |   | $4,113 |   | $3,499 |
| Tax        benefit from employee stock options exercised               |   | 938 |   | 915 |   | 614 |
|                                                                   |   |   |   |   |   |   |
| Balance        at end of year                                          |   | $5,966 |   | $5,028 |   | $4,113 |
|                                                                   |   |   |   |   |   |   |
| RETAINED        EARNINGS                                               |   |   |   |   |   |   |
| Balance        at beginning of year                                    |   | $208,137 |   | $203,325 |   | $188,618 |
| Net        profit for year                                             |   | 28,696 |   | 9,321 |   | 19,150 |
| Dividends        paid                                                  |   | (4,616) |   | (4,509) |   | (4,443) |
|                                                                   |   |   |   |   |   |   |
| Balance        at end of year                                          |   | $232,217 |   | $208,137 |   | $203,325 |
|                                                                   |   |   |   |   |   |   |
| Total        Shareholders’ Equity                                 |   | $279,836 |   | $247,636 |   | $241,695 |

| The accompanying notes are an integral part        of these consolidated financial statements. |
|------------------------------------------------------------------------------------------------|

61

______________________________________________________________________________

 

 

 

| OPPENHEIMER HOLDINGS INC.                                                               |
|-----------------------------------------------------------------------------------------|
| CONSOLIDATED STATEMENTS OF CASH FLOWS                                                   |
| FOR THE YEAR ENDED DECEMBER 31,                                                         |
|                                                                                    | Restated

2003 |   | 2002 |   | 2001 |
| (Expressed in thousands of U.S.        dollars)                                         |
| Cash flows from operating activities:                                                   |   |   |   |   |   |
| Net profit for year                                                                     | $28,696 |   | $9,321 |   | $19,150 |
| Adjustments to reconcile net profit to net        cash provided                         |   |   |   |   |   |
| by (used in) operating activities:                                                      |   |   |   |   |   |
| Non-cash items included in net profit:                                                  |   |   |   |   |   |
| Depreciation and amortization                                                           | 9,518 |   | 4,864 |   | 3,974 |
| Loss on disposal of fixed assets                                                        | - |   | - |   | 443 |
| Write off of negative goodwill (note 2)                                                 | - |   | (1,774) |   | - |
| Deferred tax liability                                                                  | 9,230 |   | 57 |   | - |
| Tax benefit from employee stock options        exercised                                | 938 |   | 915 |   | 614 |
| Decrease (increase) in operating assets, net        of the effect of acquisitions:      |   |   |   |   |   |
| Restricted deposits                                                                     | (7,026) |   | (5,047) |   | 319 |
| Securities purchased under agreement to        resell                                   | - |   | - |   | 23,500 |
| Deposits with clearing organizations                                                    | (14,252) |   | 4,080 |   | (1,769) |
| Receivable from brokers and clearing        organizations                               | 213,573 |   | (391,400) |   | 37,463 |
| Receivable from customers                                                               | (513,558) |   | 71,057 |   | (35,404) |
| Securities owned                                                                        | (32,267) |   | 699 |   | 1,524 |
| Notes receivable                                                                        | (15,395) |   | (4,522) |   | (7,763) |
| Other assets                                                                            | (22,103) |   | (3,377) |   | 1,647 |
| Increase (decrease) in operating        liabilities, net of the effect of acquisitions: |   |   |   |   |   |
| Drafts payable                                                                          | 46,495 |   | 1,031 |   | (5,842) |
| Securities sold under agreement to        repurchase                                    | - |   | - |   | (23,500) |
| Payable to brokers and clearing        organizations                                    | (52,777) |   | 341,531 |   | (42,938) |
| Payable to customers                                                                    | 243,794 |   | (26,044) |   | 63,853 |
| Securities sold, but not yet purchased                                                  | 1,081 |   | 685 |   | 498 |
| Accrued compensation                                                                    | 47,543 |   | 1,558 |   | 1,773 |
| Accounts payable and other liabilities                                                  | 1,807 |   | (7,439) |   | (11,684) |
| Income taxes payable                                                                    | (1,990) |   | 565 |   | (3,487) |
| Cash        (used in) provided by operating activities                                  | (56,693) |   | (3,240) |   | 22,341 |
| Cash flows from investing activities:                                                   |   |   |   |   |   |
| Purchase of the Oppenheimer divisions                                                   | (15,611) |   | - |   | - |
| Purchase of Josephthal Group, Inc., net of        cash acquired                         | - |   | - |   | 3,139 |
| Purchase of Grand Charter Group, net of cash        acquired                            | - |   | - |   | (1,789) |
| Purchase of the business of BUYandHOLD                                                  | - |   | (2,297) |   | - |
| Proceeds from sale of exchange seat                                                     | - |   | 24 |   | - |
| Purchase of property, plant and equipment                                               | (12,215) |   | (1,360) |   | (1,009) |
| Cash        (used in) provided by investing activities                                  | (27,826) |   | (3,633) |   | 341 |

62

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| OPPENHEIMER HOLDINGS INC.                                                                 |
|-------------------------------------------------------------------------------------------|
| CONSOLIDATED STATEMENTS OF CASH FLOWS        (continued)                                  |
| FOR THE YEAR ENDED DECEMBER 31,                                                           |
|                                                                                      | Restated

2003 |   | 2002 |   | 2001 |
| (Expressed in thousands of U.S.        dollars)                                           |
| Cash flows from financing activities:                                                     |   |   |   |   |   |
| Cash dividends paid on Class A and                                                        |   |   |   |   |   |
| Class B Shares                                                                            | (4,616) |   | (4,509) |   | (4,443) |
| Issuance of Class A Shares                                                                | 7,767 |   | 3,503 |   | 4,723 |
| Repurchase of Class Shares for                                                            |   |   |   |   |   |
| cancellation                                                                              | (585) |   | (3,289) |   | (149) |
| Zero coupon promissory note repayments                                                    | (14,639) |   | - |   | - |
| Proceeds from issuance of bank loans                                                      | 50,000 |   | - |   | - |
| Bank loan repayments                                                                      | (10,345) |   | - |   | - |
| Increase (decrease) in bank call loans                                                    | 75,300 |   | 3,066 |   | (13,265) |
| Cash        provided by (used in) financing activities                                    | 102,882 |   | (1,229) |   | (13,134) |
| Net (decrease) increase in cash and cash        equivalents                               | 18,363 |   | (8,102) |   | 9,548 |
| Cash and cash equivalents, beginning of year                                              | 16,115 |   | 24,217 |   | 14,669 |
| Cash and cash equivalents, end of year                                                    | $34,478 |   | $16,115 |   | $24,217 |
| **Supplemental        Cash Flow Disclosure:**
Non-cash acquisition activity (see Note 14) |
| The accompanying notes are an        integral part of these financial statements          |

 

63

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OPPENHEIMERHOLDINGS INC.

Notes toConsolidated Financial Statements

(Expressed in U.S.dollars)

December 31, 2003

GENERAL

Oppenheimer Holdings Inc.(formerly Fahnestock Viner Holdings Inc.) ("OPY") isincorporated under the laws of Ontario. On September 2, 2003 thenames of OPY and certain of its subsidiaries were changed. Theconsolidated financial statements include the accounts of OPY andits subsidiaries (together, the "Company"). Theprincipal subsidiaries of OPY are Oppenheimer & Co. Inc.(formerly Fahnestock & Co. Inc.) ("Oppenheimer"), aregistered broker dealer in securities, and Oppenheimer AssetManagement Inc.(formerly Hudson Capital Advisors, Inc.)("OAM"), a registered investment advisor under theInvestment Advisors Act of 1940. Oppenheimer operates asFahnestock & Co. Inc. in South America. Oppenheimer ownsFreedom Investments, Inc. ("Freedom"), a registeredbroker dealer in securities, which also operates as theBUYandHOLD division of Freedom, offering on-line discountbrokerage and dollar-based investing services. Oppenheimer is amember of the New York Stock Exchange, the American StockExchange and several other regional exchanges in the UnitedStates. The Company engages in a broad range of activities in thesecurities industry, including retail securities brokerage,institutional sales and trading, investment banking (bothcorporate and public finance), research, market-making, trustservices, and investment advisory and asset management services.

**1. Summary of significantaccounting policies**

These consolidated financialstatements have been prepared in conformity with accountingprinciples generally accepted in the United States of America forpurpose of inclusion in the Company’s annual report on Form10-K. In all material respects, they conform with accountingprinciples generally accepted in Canada, which have been used toprepare the consolidated financial statements for purposes ofinclusion in the Company’s annual report to shareholders.

The preparation of financialstatements in conformity with generally accepted accountingprinciples requires management to make estimates and assumptionsthat affect the reported amounts of assets and liabilities anddisclosures of contingent assets and liabilities at the dates ofthe financial statements and the reported amounts of revenues andexpenses during the reporting periods. The most significantestimates are related to income taxes and contingencies. Actualresults could be materially different from these estimates.

Since operations are predominantlybased in the United States of America, these consolidatedfinancial statements are presented in U.S. dollars.

Certain prior period amounts havebeen reclassified to conform to the current presentation.

The following is a summary ofsignificant accounting policies followed in the preparation ofthese consolidated financial statements:

64

_________________________________________________________________________

*(a) Basis of consolidation*

The consolidated financialstatements include the accounts of the Company and allsubsidiaries. The major subsidiaries, wholly-owned and operatedin the United States of America, are as follows:

> 
Oppenheimer & Co. Inc.        -broker/dealer in securities

Oppenheimer Asset        Management Inc. -investment advisory services

Freedom Investments, Inc.        -discount broker in securities

Significant intercompany balancesand transactions have been eliminated in the preparation of theconsolidated financial statements.

*(b) Brokerage operations*

Transactions in proprietarysecurities and related revenues and expenses are recorded on atrade date basis. Customers’ securities and commoditiestransactions are reported on a settlement date basis, which isgenerally three business days after trade date. Relatedcommission income and expense is recorded on a trade date basis.Securities owned and securities sold, but not yet purchased, arereported at market value generally based upon quoted prices.Realized and unrealized changes in market value are recognized innet trading revenues in the period in which the change occurs.Other financial instruments are carried at fair value or amountsthat approximate fair value.

*(c) Asset managementoperations*

Asset management fees aregenerally recognized over the period the related service isprovided based on the account value at the valuation date per therespective asset management agreements. In certain circumstances,OAM is entitled to receive incentive fees when the return onassets under management exceeds certain benchmark returns orother performance targets. Incentive fees are generally based oninvestment performance over a 12-month period and are not subjectto adjustment once the measurement period ends. Accordingly,incentive fees are recognized in the consolidated statements ofoperations when the measurement period ends. Asset managementfees and incentive fees are included in "Advisory fees"in the consolidated statements of earnings. Assets undermanagement are not included as assets of the Company.

*(d) Cash and cashequivalents*

The Company defines cashequivalents as highly liquid investments with original maturitiesof less than 90 days that are not held for sale in the ordinarycourse of business.

*(e) Drafts payable*

Drafts payable representamounts drawn by the Company against a bank.

*(f) Goodwill*

Goodwill arose upon theacquisitions of Oppenheimer, First of Michigan CapitalCorporation, Josephthal & Co. Inc., Grand Charter GroupIncorporated and the Oppenheimer divisions. Goodwill is subjectto an annual test for impairment to determine if the fair valueof goodwill of a reporting unit is less than its carrying amount.Goodwill recorded as at December 31, 2003 has been tested forimpairment and no such impairment was recorded.

(g) *Intangible Assets*

Intangible assets arose uponthe acquisition of the Oppenheimer divisions and are comprised ofcustomer relationships and trademarks and trade names. Customerrelationships, carried at $4,165,000 net of accumulatedamortization of $735,000, are being amortized on a straight-linebasis over 80 months commencing in January 2003. Trademarks andtrade names, carried at $31,700,000, which are not amortized, aresubject to an annual test for impairment to 

65

_______________________________________________________________________

determine if the fair value isless than its carrying amount.

*(h) Property, plant andequipment*

Furniture, fixtures, equipmentand leasehold improvements and stock exchange seats are stated atcost. Depreciation of furniture,fixtures and equipment isprovided on a straight-line basis generally over three to sevenyears. Leasehold improvements are amortized on a straight-linebasis over the shorter of the life of the improvement or theremaining term of the lease. 

*(i) Foreign currencytranslations*

Canadian currency balanceshave been translated into U.S. dollars as follows: monetaryassets and liabilities at exchange rates prevailing at periodend; revenue and expenses at average rates for the period; andnon-monetary assets and share capital at historical rates.

*(j) Income taxes*

The Company accounts forincome taxes in accordance with Statement of Financial AccountingStandards No. 109, "Accounting for Income Taxes".Deferred income tax assets and liabilities arise from"temporary differences" between the tax basis of anasset or liability and its reported amount in the consolidatedfinancial statements. Deferred tax balances are determined byapplying the enacted tax rates.

*(k)Securities lendingactivities*

Securities borrowed andsecurities loaned are carried at the amounts of cash collateraladvanced or received.

Securities borrowedtransactions require the Company to deposit cash or othercollateral with the lender. The Company receives cash orcollateral in an amount generally in excess of the market valueof securities loaned.

The Company monitors themarket value of securities borrowed and loaned on a daily basisand may require counterparties to deposit additional collateralor return collateral pledged, when appropriate.

Included in receivable frombrokers and clearing organizations are deposits paid forsecurities borrowed of $237,329,000 (as at December 31, 2002 -$480,938,000). Included in payable to brokers and clearingorganizations are deposits received for securities loaned of$444,977,000 (as at December 31, 2002 - $514,213,000).

*(l) Resale and repurchaseagreements*

Transactions involvingpurchases of securities under agreements to resell ("reverserepurchase agreements") or sales of securities underagreements to repurchase ("repurchase agreements") aretreated as collateralized financing transactions and recorded attheir contractual resale or repurchase amounts plus accruedinterest.

The Company obtains possessionof collateral with a market value equal to or in excess of theprincipal amount loaned under reverse repurchase agreements.Collateral is valued daily and adjusted when appropriate.

*(m) Investment bankingrevenues*

Investment banking fees arerecorded on offering date, sales concessions on settlement dateand underwriting fees at the time the transaction issubstantially completed and income is reasonably determinable. 

*(n) Interest expense*

Included in interest expenseis interest on bank loans, debt, payments in lieu of interest onsecurities loaned and interest paid with respect to repurchaseagreements.

 

66

__________________________________________________________________________

Interest expense relating tothe variable rate exchangeable debentures is computed using theinterest method. The interest method requires the application ofthe effective interest rate over the life of increasing rate debtinstruments. The effective annual interest rate under theinterest method of the variable rate exchangeable debentures is4.5% over the life of the variable rate exchangeable debentures.

 

*(o)**Stock-basedcompensation plans*

The Company has a stock-basedcompensation plan. The Company accounts for stock basedcompensation in accordance with Accounting Principles Board Opinion No. 25,"Accounting for Stock Issued to Employees". No compensation expense is recognizedfor this plan when stock options are issued to employees as theoptions are exercisable at the fair value at the date of grant.Any consideration paid by employees on the exercise of stockoptions or purchase of stock is credited to share capital.

*(p) Restatement of 2003financial statements*

The Company discovered an error inthe calculation of interest expense related to its first andsecond variable rate exchangeable debentures. The Companyexpensed actual interest on these debentures at the rate of 3% in2003 and 4% in the first three quarters of 2004. Instead, theCompany should have used the "interest method," whichrequires that the effective interest expense that will beincurred over the life of increasing rate debt instruments beexpensed, which would have resulted in the use of an effectiveannual interest rate of 4.5% on the exchangeable debentures inall periods. The error resulted in the understatement of theliabilities, interest expense and total expenses and theoverstatement of profit before income taxes and net profit forthe year ended December 31, 2003. In addition, the Company hascorrected other immaterial items relating to the allowance fordoubtful accounts, litigation reserves, accrued compensation andprepaid expenses. As a result of the restatement, the amount ofthe formula-based C.E.O. compensation has been recomputed. Theoverpayment is being repaid in 2005. The Company has restated itsConsolidated Balance Sheets, Consolidated Statements ofOperations, Consolidated Statements of Cash Flows andConsolidated Statements of Shareholders’ Equity as well asNotes 1, 2, 7, 10, 11, 16, and 18 of Notes to ConsolidatedFinancial Statements for 2003 to reflect the restatement for thematters described above. 

The following table isolates eachof the restated amounts in the Company’s consolidatedfinancial statements for the year ended December 31, 2003.

|                                                   | Restated   | As originally reported |
|--------------------------------------------------------|------------|------------------------|
| Consolidated        Balance Sheets:                    |       |                   |
|                                                   |       |                   |
| Other assets                                           | $63,973    | $63,610                |
| Total current        assets                            | $1,508,925 | $1,508,562             |
| Total assets                                           | $1,709,480 | $1,709,117             |
|                                                   |       |                   |
| Accrued        compensation                            | $88,864    | $88,999                |
| Accounts        payable and other liabilities          | $35,450    | $33,857                |
| Total current        liabilities                       | $1,194,859 | $1,193,401             |
| Retained        earnings                               | $232,217   | $233,312               |
| Total        shareholders’ equity                 | $279,836   | $280,931               |
| Total        liabilities and shareholders’ equity | $1,709,480 | $1,709,117             |

67

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|                                                                    | Restated  | As originally reported |
|-------------------------------------------------------------------------|-----------|------------------------|
| Consolidated        Statements of Operations:                           |      |                   |
|                                                                    |      |                   |
| Compensation        and related expenses                                | $435,025  | $435,160               |
| Interest        expense                                                 | $16,891   | $14,322                |
| Other expense                                                           | $60,497   | $61,044                |
| Total        expenses                                                   | $641,278  | $639,390               |
| Profit before        income taxes                                       | $48,715   | $50,603                |
| Income tax        provision                                             | $20,019   | $20,812                |
| Net profit        for the year                                          | $28,696   | $29,791                |
| Basic        earnings per share                                         | $2.26     | $2.35                  |
| Diluted        earnings per share                                       | $1.65     | $1.63                  |
|                                                                    |      |                   |
|                                                                    |      |                   |
| Consolidated        Statements of Changes in Shareholders’ Equity: |      |                   |
|                                                                    |      |                   |
| Net profit        for the year                                          | $28,696   | $29,791                |
| Retained        earnings at end of year                                 | $232,217  | $233,312               |
| Total        shareholders’ equity                                  | $279,836  | $280,931               |
|                                                                    |      |                   |
|                                                                    |      |                   |
| Consolidated        Statements of Cash Flows:                           |      |                   |
|                                                                    |      |                   |
| Net profit        for year                                              | $28,696   | $29,791                |
| Other assets                                                            | $(22,103) | $(21,740)              |
| Accrued        compensation                                             | $47,543   | $47,678                |
| Accounts        payable and other liabilities                           | $1,807    | $214                   |
|                                                                    |      |                   |
|                                                                    |      |                   |

 

 

**2. Recently Issued AccountingStandards**

*Goodwill and other intangibleassets*

The Company adopted FinancialAccounting Standards Board issued Statement of AccountingStandards No.142, "Goodwill and Other Intangibles" effectiveJanuary 1, 2002 without restatement of prior periods. Inconnection with the adoption of the standard, the Company’srecorded amount of goodwill is no longer subject to amortizationbut is being periodically measured for impairment. Suchimpairment test was performed as at December 31, 2003 and noimpairment was recorded.

In addition, on January 1, 2002,the Company wrote off unamortized "negative goodwill"in the amount of $1,774,000, as required by the standard.Negative goodwill represents the excess fair value of net assetsacquired above the cost of acquisition. The write-off wasrecognized in the statement of operations for the year endedDecember 31, 2002 as a gain from the cumulative effect of achange in accounting principle. 

The following table reflects theeffect of the amortization of goodwill on the results ofoperations as though FAS 142 had been adopted on January 1, 2001.

68

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|                                                                                          | December 31,   |
|-----------------------------------------------------------------------------------------------|----------------|
|                                                                                          | Restated

2003 | 2002 | 2001 |
|                                                                                          |           |   |   |
| Profit        before cumulative effect of a change in accounting        principle as reported | $28,696        | $7,547 | $19,150 |
| Amortization        of goodwill as reported                                                   | -              | - | 432 |
| Profit        before cumulative effect of a change in accounting        principle as adjusted | 28,696         | 7,547 | 19,582 |
| Cumulative        effect of a change in accounting principle as reported                      | -              | 1,774 | - |
| Net        profit as adjusted                                                                 | $28,696        | $9,321 | $19,582 |
|                                                                                          |           |   |   |
| Basic        earnings per share as reported                                                   | $2.26          | $0.75 | $1.55 |
| - Before        cumulative effect of a change in accounting principle                         | $2.26          | $0.61 | $1.55 |
| -Cumulative        effect of a change in accounting principle                                 | -              | $0.14 | - |
|                                                                                          |           |   |   |
| Diluted        earnings per share as reported                                                 | $1.65          | $0.73 | $1.50 |
|                                                                                          |           |   |   |
| Basic        earnings per share as adjusted                                                   | $2.26          | $0.75 | $1.59 |
| Diluted        earnings per share as adjusted                                                 | $1.65          | $0.73 | $1.53 |

 

*Other recently issuedaccounting standards*

The Financial AccountingStandards Board issued SFAS No. 146, "Accounting for CostsAssociated with Exit or Disposal Activities", FIN No. 45,"Guarantor’s Accounting and Disclosure Requirements forGuarantees, Including Indirect Guarantees of Indebtedness ofOthers", FIN No. 46, "Consolidation of VariableInterest Entities", SFAS No. 149, "Amendment ofStatement 133 on Derivative Instruments and HedgingActivities", and SFAS No. 150, "Accounting for CertainFinancial Instruments with Characteristics of both Liabilitiesand Equity". The Company has adopted these statements andinterpretations and their adoption did not have a material impacton its financial results. 

The Company has reviewed SFASNo. 148, "Accounting for Stock-Based Compensation –Transition and Disclosure" and has adopted the disclosureprovisions, but does not intend to adopt the other provisions ofthis standard at this time.

**3. Restricted deposits**

Deposits of $14,466,000 (2002 -$7,440,000) were held at year-end in a special reserve bankaccounts for the exclusive benefit of customers in accordancewith regulatory requirements. To the extent permitted, thesedeposits are invested in interest bearing accounts collateralizedby qualified securities.

 

69

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**4. Securities owned andSecurities sold, but not yet purchased (at fair market value)**

|                                                                                              | 2003        |   | 2002        |
|---------------------------------------------------------------------------------------------------|-------------|--------|-------------|
| Securities        owned consist of:                                                               |        |   |        |
| Corporate        equities                                                                         | $34,877,000 |   | $11,467,000 |
| Corporate and        sovereign debt                                                               | 24,962,000  |   | 16,522,000  |
| U.S.        government and agency and state and municipal government        obligations           | 32,070,000  |   | 22,103,000  |
| Money market        funds                                                                         | 3,288,000   |   | -           |
| Options and        other                                                                          | 26,000      |   | 81,000      |
|                                                                                              | $95,223,000 |   | $50,173,000 |
|                                                                                              |        |   |        |
| Securities        sold, but not yet purchased consist of:                                         |        |   |        |
| Corporate        equities                                                                         | $3,128,000  |   | $5,049,000  |
| Corporate        debt                                                                             | 5,115,000   |   | 3,935,000   |
| U.S.        government and agency and state and municipal government        obligations and other | 2,444,000   |   | 622,000     |
|                                                                                              | $10,687,000 |   | $9,606,000  |

Securities owned and Securitiessold, but not yet purchased, consist of trading and investmentsecurities at fair market values. Included in securities owned atDecember 31, 2003 are corporate equities with fair market valuesof approximately $15,781,000, which are correlated to deferredcompensation liabilities to certain employees. At December 31,2003, the Company has pledged securities owned of approximately$1,427,000 ($1,078,000 in 2002) as collateral to counterpartiesfor securities loan transactions, which can be sold or repledged.

**5. Property, plant andequipment**

|                                     |                                            |                                    | 2003           | 2002           |
|------------------------------------------|-------------------------------------------------|-----------------------------------------|----------------|----------------|
|                                     | (Expressed in thousands of U.S.        dollars) |
|                                     | Cost                                            | Accumulated depreciation/

amortization | Net book value | Net book value |
| Furniture,        fixtures and equipment | $40,415                                         | $25,744                                 | $14,671        | $7,395         |
| Leasehold        improvements            | 15,542                                          | 6,406                                   | 9,136          | 1,093          |
|                                     | $55,957                                         | $32,150                                 | $23,807        | $8,488         |

Depreciation and amortizationexpense, included in occupancy and equipment costs, was$8,783,000, $4,864,000 and $3,542,000 in the years ended December31, 2003, 2002 and 2001, respectively.

**6. Bank call loans**

Bank call loans, primarily payableon demand, bear interest at various rates but not exceeding thebroker call rate, which was 2.75% at December 31, 2003. Theseloans, collateralized by firm and customer securities with marketvalues of approximately $35,674,000 and $139,478,000,respectively, at December 31, 2003 are primarily with two U.S.money center banks. Details of the bank call loans are asfollows:

70

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|                                                        | 2003         | 2002        | 2001        |
|-------------------------------------------------------------|--------------|-------------|-------------|
| Year-end        balance                                     | $91,500,000  | $16,200,000 | $13,134,000 |
| Weighted        interest rate (at end of year)              | 1.41%        | 1.38%       | 2.07%       |
| Maximum        balance (at any month end)                   | $170,100,000 | $49,281,000 | $37,666,000 |
| Average        amount outstanding (during the year) (1)     | $86,026,000  | $19,760,000 | $12,836,000 |
| Weighted        average interest rate (during the year) (2) | 2.96%        | 2.10%       | 4.80%       |

(1) The average amount outstandingduring the year was computed by adding amounts outstanding at theend of each month and dividing by twelve.

(2) The weighted average interest rate during the year wascomputed by dividing the actual interest expense by the averagebank call loans outstanding at the end of each month.

Aggregate interest paid on bankcall loans by the Company on a cash basis during the years endedDecember 31, 2003, 2002, and 2001 was $6,523,000, $6,473,000 and$9,709,000, respectively.

 

**7. Long term liabilities**

| Issued                                                                                                                                       | Maturity Date | Interest Rate | December 31, 2003 |   |
|----------------------------------------------------------------------------------------------------------------------------------------------|---------------|---------------|-------------------|--------|
| Bank        loans **(a)**                                                                                                                    | 1/2/2008      | 6.5%          | $39,655,000       |   |
| Less        current portion                                                                                                                  |          |          | 10,119,000        |   |
| Long term        portion of bank loans                                                                                                       |          |          | $29,536,000       |   |
|                                                                                                                                         |          |          |              |   |
|                                                                                                                                         |
| Zero        Coupon Promissory Note,                                                                                                          |
| issued        January 2, 2003 **(b)**                                                                                                        | -             | 0%            | $50,875,000       |   |
| Less current portion                                                                                                                         | 15,921,000    |          |
| Long term        portion of long-term debt                                                                                                   |          |          | $34,954,000       |   |
|                                                                                                                                         |
|                                                                                                                                         |
| First and        Second Variable Rate Exchangeable 
Debentures**,**issued****

January 6, 2003 and        May 12, 2003, respectively **(c)** | 1/2/2013      | 3%            | $160,822,000      |   |
|                                                                                                                                         |

(a) Bank loans are subject        to a credit arrangement with Canadian Imperial Bank of        Commerce ("CIBC") dated January 2, 2003 in the        aggregate amount of $50 million dollars, and bear        interest at the U.S. base rate plus 2% per annum. The        minimum annual principle repayment under the agreement is        approximately $10,119,000. The principle repayments are        tied to certain employee notes receivable issued during        2003 and repayments above the minimum level are triggered        by the termination of employment of these employees. In        accordance with the credit arrangement, the Company has        provided certain covenants to CIBC with respect to the        maintenance of minimum debt/equity ratios and net capital        of Oppenheimer. In the 

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Company’s view,        the most restrictive of the covenants requires that        Oppenheimer maintain minimum excess net capital of $100        million. As at December 31, 2003, the Company was in        compliance with the covenants. Interest expense on bank        loans was $2,021,000 in 2003, of which $1,802,000 was        paid on a cash basis.

(b)The Zero Coupon PromissoryNote is repayable as related employee notes receivable, which areassigned to Oppenheimer, become due and are forgiven. Suchpayments are to be made notwithstanding whether any of theemployees’ loans default.

(c)The First and SecondVariable Rate Exchangeable Debentures are exchangeable forapproximately 6.9 million Class A Shares of the Company at therate of $23.20 per share. The annual interest rate is 3% in 2003,4% in 2004 - 2006, and 5% in 2007 through maturity. The effectiveinterest rate over the life of the debentures is 4.5%. The Firstand Second Variable Rate Exchangeable Debentures, which mature onJanuary 2, 2013, contain a retraction clause, which may beactivated by the holder for a period of 120 days at the end ofyear seven. Interest is payable semi-annually in June andDecember. Interest expense on the First and Second Variable RateExchangeable Debentures was $7,217,000 ($4,811,000 on a cashbasis) in 2003.

**8. Share capital**

The Company's authorized sharecapital, all of which is without par value, consists of (a) anunlimited number of first preference shares issuable in series;(b) an unlimited number of Class A non-voting shares ("ClassA Shares"); and (c) 99,680 Class B voting shares("Class B Shares").

The Class A and the Class B Sharesare equal in all respects except that the Class A Shares arenon-voting.

The Company's issued andoutstanding share capital is as follows (no first preferenceshares have been issued):

|                                                                                | 2003        |   | 2002        |   | 2001        |
|-------------------------------------------------------------------------------------|-------------|--------|-------------|--------|-------------|
| 12,819,520        (12,397,007 in 2002 and 12,337,085 in 2001) Class A        Shares | $41,520,000 |   | $34,338,000 |   | $34,124,000 |
| 99,680 Class        B Shares                                                        | 133,000     |   | 133,000     |   | 133,000     |
|                                                                                |        |   |        |   |        |
|                                                                                | $41,653,000 |   | $34,471,000 |   | $34,257,000 |

*Equity Incentive Plan*

Under the Company’s 1996Equity Incentive Plan as amended February 28, 2002("EIP"), the compensation and stock option committee ofthe board of directors of the Company may grant options topurchase Class A Shares to officers and key employees of theCompany and its subsidiaries. Grants of options are made to theCompany’s independent directors on a formula basis. Optionsare generally granted for a five-year term and generally vest atthe rate of 25% of the amount granted for each year held. Theaggregate number of Class A Shares that are available under theEIP is 3,815,000.

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|                                          | 2003             | 2002                            |
|-----------------------------------------------|------------------|---------------------------------|
|                                          | Number of shares | Weighted average exercise price | Number of shares | Weighted average exercise price |
|                                          |             |                            |   |   |
| Options        outstanding, beginning of year | 1,978,959        | $20.16                          | 1,907,503 | $17.36 |
| Options        granted                        | 376,500          | $24.97                          | 383,128 | $27.14 |
| Options        exercised                      | (425,171)        | $16.83                          | (211,322) | $16.57 |
| Options        forfeited                      | (45,305)         | $22.34                          | (100,350) | $26.35 |
| Options        outstanding, end of year       | 1,884,983        | $21.81                          | 1,978,959 | $20.16 |
| Options        vested, end of year            | 581,723          | $16.63                          | 462,185 | $16.13 |

The following table summarizesstock options outstanding and exercisable as at December 31,2003.

| Range of exercise prices | Number outstanding | Weighted average remaining contractual life | Weighted average exercise price

of        outstanding

options | Number exercisable

(vested) | Weighted average exercise price of

vested

options |
|--------------------------|--------------------|---------------------------------------------|-----------------------------------------------------------------|------------------------------|-----------------------------------------------------|
|                     |               |                                        |                                                            |                         |                                                |
| $13.875-$22.00           | 633,178            | 0.75 years                                  | $15.35                                                          | 463,723                      | $14.63                                              |
| $22.00-$34.51            | 1,251,805          | 2.97 years                                  | $25.08                                                          | 118,000                      | $24.49                                              |
|                     |               |                                        |                                                            |                         |                                                |
| $13.875-$34.51           | 1,884,983          | 2.22 years                                  | $21.81                                                          | 581,723                      | $16.63                                              |

The Company issued 23,042 Class AShares from Treasury for a total consideration of $613,000 to theCompany's 401(k) plan in the year ended December 31, 2003 (nil in2002 and 2001).

*Dividends*

In 2003, the Company paid cashdividends to holders of Class A and Class B Shares as follows($0.36 in 2002 and 2001):

Dividend per share / Record Date /Payment Date

$0.09 / February 14, 2003 / February28, 2003

$0.09 / May 9, 2003 / May 23, 2003

$0.09 / August 8, 2003 / August 22,2003

$0.09 / November 7, 2003 / November21, 2003

*Issuer Bid*

The Company may purchase up to636,000 Class A Shares by way of a Normal Course Issuer Bidthrough the facilities of The Toronto Stock Exchange and/or theNew York Stock Exchange until July 9, 2004. During the year endedDecember 31, 2003, the Company purchased 25,700 Class A Sharesfor a total consideration of $585,000, pursuant to a NormalCourse Issuer Bid which expired on July 8, 2003 (151,400 sharesfor $3,289,000 in 2002 and 6,100 shares for $149,000 in 2001).

**9. Contributed capital**

Contributed capital represents thetax benefit on the difference between market price and exerciseprice on employee stock options exercised.

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**10. Income taxes**

The income tax provision shown inthe consolidated statement of operations is reconciled to amountsof tax that would have been payable (recoverable) from theapplication of combined federal, state, provincial and local taxrates to pre-tax profit as follows:

|                                                                   | Restated

2003 | 2002        | 2001        |
|------------------------------------------------------------------------|----------------|-------------|-------------|
|                                                                   |           |        |        |
| Profit before        income tax                                        | $48,715,000    | $12,917,000 | $31,612,000 |
|                                                                   |           |        |        |
| U.S. federal        tax at 35%                                         | $17,700,000    | $4,524,000  | $11,092,000 |
| Canadian tax        at 44%                                             | -              | 74,000      | -           |
| Combined        state and local tax, net of federal benefit            | 1,915,000      | 653,000     | 1,977,000   |
| Income taxes        before under-noted                                 | 19,615,000     | 5,251,000   | 13,069,000  |
| Tax effect of        non-taxable interest and dividends                | (329,000)      | (148,000)   | (143,000)   |
| Tax effect of        differences between accounting and taxable income | 733,000        | 267,000     | (464,000)   |
| Income taxes                                                           | $20,019,000    | $5,370,000  | $12,462,000 |
|                                                                   |           |        |        |
| Profit before        income tax provision:                             |           |        |        |
| Canadian        operations                                             | ($1,857,000)   | $(10,000)   | $(78,000)   |
| U.S.        operations                                                 | $50,572,000    | $12,927,000 | $31,690,000 |

Income taxes included in theconsolidated statements of operations represent the following:

|                       |
|----------------------------|
|                       | Restated

2003 | 2002 | 2001 |
| Current:                   |   |   |   |
| Canadian        tax        | - | $74,000 | - |
| U.S. federal        tax    | $18,776,000 | 5,176,000 | $9,878,000 |
| State and        local tax | 3,493,000 | 1,226,000 | 3,157,000 |
|                       | $22,269,000 | 6,476,000 | 13,035,000 |
| Deferred:                  |   |   |   |
| U.S. federal        tax    | $(1,819,000) | $(885,000) | $(458,000) |
| State and        local tax | (431,000) | (221,000) | (115,000) |
|                       | (2,250,000) | (1,106,000) | (573,000) |
|                       | $20,019,000 | $5,370,000 | $12,462,000 |

Goodwill arising from theacquisitions of Josephthal Group Inc. and the Oppenheimerdivisions is being amortized for tax purposes on a straight-linebasis over 15 years. The difference between book and tax isrecorded as a deferred tax liability.

Aggregate deferred income taxassets, which relate primarily to fixed assets and currentlynon-deductible expenses, are included in other assets andamounted to approximately $7,257,000 ($5,966,000 in 2002).

On a cash basis, the Company paidincome taxes for the years ended December 31, 2003, 2002 and 2001in the amounts of $13,342,000, $8,411,000 and $14,918,000,respectively.

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**11. Earnings per share**

Basic earnings per share wascomputed by dividing net profit by the weighted average number ofClass A and Class B Shares outstanding. Diluted earnings pershare includes the weighted average Class A and Class B Sharesoutstanding and the effects of exchangeable debentures using theif converted method and Class A Share options using the treasurystock method.

Earnings per share has beencalculated as follows:

|                                                                                                                           | Restated

2003 |   | 2002       |   | 2001        |
|--------------------------------------------------------------------------------------------------------------------------------|----------------|--------|------------|--------|-------------|
| Basic        weighted average number of shares outstanding                                                                     | 12,692,634     |   | 12,429,264 |   | 12,348,051  |
| Net effect,        if converted method                                                                                         | 6,932,000      |   | -          |   | -           |
| Net effect,        treasury method                                                                                             | 317,850        |   | 280,278    |   | 421,783     |
| Diluted        common shares (1)                                                                                               | 19,942,484     |   | 12,709,542 |   | 12,769,834  |
|                                                                                                                           |           |   |       |   |        |
| Net profit,        as reported                                                                                                 | $28,696,000    |   | $9,321,000 |   | $19,150,000 |
| Effect of        dilutive exchangeable debentures                                                                              | 4,186,000      |   | -          |   | -           |
| Net profit        available to shareholders and assumed conversions                                                            | $32,882,000    |   | $9,321,000 |   | $19,150,000 |
|                                                                                                                           |           |   |       |   |        |
| Basic        earnings per share                                                                                                | $2.26          |   | $0.75      |   | $1.55       |
| -Before        cumulative effect of a change in accounting principle                                                           | $2.26          |   | $0.61      |   | $1.55       |
| -Cumulative        effect of a change in accounting principle                                                                  | -              |   | $0.14      |   | -           |
|                                                                                                                           |           |   |       |   |        |
| Diluted        earnings per share                                                                                              | $1.65          |   | $0.73      |   | $1.50       |
|                                                                                                                           |           |   |       |   |        |
| (1) The        diluted earnings per share computations do not include        the antidilutive effect of the following options: |           |   |       |   |        |
| Number of        antidilutive options, end of period                                                                           | 291,995        |   | 509,630    |   | 124,000     |

 

 

***Stock-based compensation***

Financial Accounting StandardsBoard Statement No. 123, "Accounting for Stock-BasedCompensation" (SFAS 123) was issued in 1995 and changed themethod of accounting for stock compensation plans similar tothose of the Company. Adoption of SFAS 123’s fair valuerecognition method is optional. The Company has chosen tocontinue to apply Accounting Principles Board Opinion No. 25,"Accounting for Stock Issued to Employees", and relatedinterpretations in accounting for its stock compensation plans.The Company has reviewed SFAS No. 148, "Accounting forStock-Based Compensation – Transition and Disclosure",which was issued in 2002, and has adopted the disclosureprovisions but does not intend to adopt other provisions of thisstandard at this time.

In accordance with SFAS 123, thefollowing presents the pro forma income and earnings per shareimpact, using a fair value calculation, of the Company’sstock-based compensation. Amounts are expressed in thousands ofU.S. dollars, except per share amounts.

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|                                                                                    | Year ended December 31, |
|-----------------------------------------------------------------------------------------|-------------------------|
|                                                                                    | Restated

2003          | 2002 | 2001 |
| Net profit as        reported                                                           | $28,696                 | $9,321 | $19,150 |
| Stock based        employee compensation expense included in reported net        income | -                       | - | - |
| Additional        compensation expense                                                  | 1,840                   | 1,906 | 1,843 |
| Pro forma net        profit                                                             | $26,856                 | $7,415 | $17,307 |
|                                                                                    |                    |   |   |
| Basic profit        per share as reported                                               | $2.26                   | $0.75 | $1.55 |
| Diluted        profit per share as reported                                             | $1.65                   | $0.73 | $1.50 |
|                                                                                    |                    |   |   |
| Pro forma        basic profit per share                                                 | $2.12                   | $0.60 | $1.40 |
| Pro forma        diluted profit per share                                               | $1.56                   | $0.58 | $1.36 |

For purposes of the pro formapresentation, the Company determined fair value using theBlack-Scholes option pricing model with the following weightedaverage assumptions for grants in fiscal 2003, 2002 and 2001,respectively: expected dividend yields of 1.3%, 1.4% and 1.4%;risk-free interest rates ranging from 2.87% to 3.4%, 3.75% to4.55%, and 3.76% to 5.07%; expected volatility ranging from 21%to 23%, 27% to 28%, and 27% to 29%; and expected life of 5 years.The weighted average fair value of options granted during 2003,2002 and 2001, respectively was $1,697,000, $1,946,000 and$3,741,000. The fair value is being amortized over five years onan after-tax basis, where applicable for purposes of pro formapresentation. Stock options generally expire five years after thedate of grant or three months after the date of retirement, ifearlier. Stock options generally vest over a five year periodwith 0% in year one, 25% of the shares becoming exercisable oneach of the next three anniversaries of the grant date and thebalance vesting in the last six months of the option life. Thevesting period is at the discretion of the Compensation and StockOption Committee and is determined at the time of grant.

The calculation of fair value inthis pro forma presentation are not indicative of future amountsbecause it does not take into consideration future grants, anydifference between actual and assumed forfeitures.

 

**12. Commitments andcontingencies**

(a) The Company and its    subsidiaries have operating leases for office space and    capital leases for equipment expiring at various dates    through 2013. Future minimum rental commitments under such    office and equipment leases as at December 31, 2003 are as    follows:

| 2004                       | $23,019,000  |
|----------------------------|--------------|
| 2005                       | 20,787,000   |
| 2006                       | 19,193,000   |
| 2007                       | 17,483,000   |
| 2008 and        thereafter | 68,086,000   |
| Total                      | $148,568,000 |

Certain of the leases containprovisions for rent escalation based on increases in costsincurred by the lessor.

(b) The Company's rent expense for    the years ended December 31, 2003, 2002 and 2001 was    $31,028,000, $14,108,000 and $10,909,000, respectively.

(c) The Company, through its    subsidiaries, maintains a defined contribution plan covering    substantially all full-time U.S. employees. The Oppenheimer    plan provides that Oppenheimer may make discretionary    contributions. For certain employees who were formerly    employed by First of 

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Michigan Corporation("FOM"), contributions are made in accordance with theterms of the plan document.

FOM sponsors an unfundedSupplemental Executive Retirement Program ("SERP"),which is a non-qualified plan that provides certain formerofficers additional retirement benefits. Benefits payable underthe SERP were approximately $970,000 at December 31,2003.

The Company made contributions tothe plans of $3,491,000, $1,398,000 and $1,525,000 in 2003, 2002and 2001, respectively.

(d) On November 30, 2000 theCompany established an Executive Deferred Compensation Plan("EDCP") in order to offer to certain qualifiedhigh-performing financial consultants, a bonus based upon aformula reflecting years of service, gross commissions and avaluation of their clients’ assets. The bonus amountscalculated with respect to fiscal 2003 total approximately$1,254,000 ($966,000 in 2002, $1,270,000 in 2001) and willnormally vest five years from the end of the related fiscal year.The liability is being recognized on a straight-line basis overthe vesting period. The total amount expensed in 2003 fordeferred compensation was $4,186,000.

The Company is maintaining aDeferred Compensation Plan on behalf of certain employees whowere formerly employed by CIBC World Markets. The liability isbeing tracked against the value of an investment portfolio heldby the Company for this purpose.

The Company has granted StockAppreciation Rights to certain employees as part of theircompensation package based on a formula reflecting grosscommission and length of service. The value of Stock AppreciationRights granted in 2003 total approximately $635,000 and willnormally vest five years from the end of the related fiscal year.The liability is being recognized over the vesting period. 

In 2003, the Company awarded up to45,000 Class A Shares to certain employees, which will vest ifthe employees are continuously employed by the Company untilJanuary 3, 2006. The value of this award has been estimated at$211,000. The liability is being recognized over the vestingperiod.

The amount expensed in 2003 forstock-related awards was $468,000 (nil in 2002 and 2001).

(e) At December 31, 2003, theCompany has collateralized and uncollateralized letters of creditfor $143,900,000. Collateral for these letters of credit includemarketable customer securities of approximately $181,914,000,pledged to two financial institutions. 

(f) The Company is involved incertain litigation arising in the ordinary course of business.Management believes, based upon discussions with legal counsel,that the outcome of this litigation will not have a materialeffect on the Company's financial position. The materiality oflegal matters to the Company's future operating results dependson the level of future results of operations as well as thetiming and ultimate outcome of such legal matters.

(g) The Company's majorsubsidiaries, Oppenheimer and Freedom, are subject to the uniformnet capital requirements of the Securities and ExchangeCommission ("SEC") under Rule 15c3-1 (the"Rule"). Oppenheimer computes its net capitalrequirements under the alternative method provided for in theRule which requires that Fahnestock maintain net capital equal totwo percent of aggregate customer related debit items, as definedin SEC Rule 15c3-3. At December 31, 2003, Oppenheimer had netcapital of $150,709,000, which was $128,243,000 in excess of the$22,466,000 required to be maintained at that date. Freedomcomputes its net capital requirement under the basic methodprovided for in the Rule, which requires that Freedom maintainnet capital equal to the greater of $250,000 or 6 2/3% ofaggregate indebtedness, as defined. At December

 

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31, 2003, Freedom had net capitalof $5,056,000, which was $4,806,000 in excess of the $250,000required to be maintained at that date. 

At December 31, 2003, Oppenheimerand Freedom had $5,396,000 and $9,070,000, respectively, in cashand securities segregated under Federal and other regulations.

Oppenheimer Trust Company issubject to regulation by the New Jersey Department of Banking.

(h) In accordance with theSecurities and Exchange Commission’s No Action Letter datedNovember 3, 1998, the Company has computed a reserve requirementfor the proprietary accounts of introducing firms as of December31, 2003. The Company had no deposit requirements as of December31, 2003.

**** 

**13. Financial        instruments with off-balance sheet risk and concentration        of credit risk**

In the normal course of business,the Company's securities activities involve execution, settlementand financing of various securities transactions for customers.These activities may expose the Company to risk in the eventcustomers, other brokers and dealers, banks, depositories orclearing organizations are unable to fulfill their contractualobligations.

The Company is exposed tooff-balance sheet risk of loss on unsettled transactions in theevent customers and other counterparties are unable to fulfilltheir contractual obligations. It is the Company's policy toperiodically review, as necessary, the credit standing of eachcounterparty with which it conducts business.

Securities sold, but not yetpurchased represent obligations of the Company to deliver thespecified security at the contracted price and thereby create aliability to repurchase the security in the market at prevailingprices. Accordingly, these transactions result inoff-balance-sheet risk, as the Company's ultimate obligation tosatisfy the sale of securities sold, but not yet purchased mayexceed the amount recognized on the balance sheet. Securitiespositions are monitored on a daily basis.

The Company's customer financingand securities lending activities require the Company to pledgecustomer securities as collateral for various financing sourcessuch as bank loans and securities lending. At December 31, 2003,the Company had approximately $1.3 billionof customer securities under customer margin loansthat are available to be pledged of which the Company hasrepledged approximately $297,600,000 under securities loanagreements. In addition, the Company has received collateral ofapproximately $229,264,000 under securities borrow agreements ofwhich the Company has repledged approximately $145,949,000 ascollateral under securities loans agreements. Included inreceivable from brokers and clearing organizations arereceivables from three major U.S. broker-dealers totaling$108,870,000.

The Company monitors the marketvalue of collateral held and the market value of securitiesreceivable from others. It is the Company's policy to request andobtain additional collateral when exposure to loss exists. In theevent the counterparty is unable to meet its contractualobligation to return the securities, the Company may be exposedto off-balance sheet risk of acquiring securities at prevailingmarket prices. 

At December 31, 2003 the Companyhad outstanding commitments to buy and sell of $980,000 and$508,000, respectively, primarily of mortgage-backed securitieson a when issued basis. These commitments have off-balance sheetrisks similar to those described above.

The Company has a clearingarrangement with Pershing LLC to clear certain transactions inforeign securities. Accordingly, the Company has credit exposureswith this clearing broker. The clearing broker can rehypothecatethe securities held on behalf of the Company. The clearing 

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broker has the right to chargethe Company for losses that result from a client's failure tofulfill its contractual obligations. As the right to charge theCompany has no maximum amount and applies to all trades executedthrough the clearing broker, the Company believes there is nomaximum amount assignable to this right. At December 31, 2003,the Company has recorded no liabilities with regard to thisright. The Company's policy is to monitor the credit standing ofthis clearing broker, all counterparties and all clients withwhich it conducts business.

 

**14. Acquisitions**

On January 3, 2003, theCompany acquired the U.S. Private Client Division of CIBC WorldMarkets Corp. ("World Markets"), a wholly-ownedsubsidiary of CIBC, and agreed to complete the acquisition of theU.S. Asset Management Division of World Markets. The U.S. PrivateClient Division, also referred to as the Oppenheimer division, ispart of Oppenheimer and employed approximately 620 brokers in 18branch offices located across the United States at the time ofacquisition. Client assets at the date of acquisition wereapproximately $30 billion. The acquisition more than doubled theCompany’s private client presence in terms of client assetsand provided managerial expertise to the organization. On June 4,2003, the Company completed the acquisition of the U.S. AssetManagement Division of World Markets, now operating as OAM. OAMincludes Oppenheimer Investment Advisers, three investmentmanagement consulting programs (Investment Advisory Service,Strategic Asset Review and Portfolio Advisory Service), abroker-managed wrap program (OMEGA) and Advantage Advisors (whichincludes publicly listed closed end funds and alternativeinvestment offerings). The acquisition was accounted for by thepurchase method. The Company engaged an independent evaluator toidentify and value intangible assets acquired. The fair value ofassets acquired, included in the table below, is based on thereport of the independent evaluator.

The following table summarizesthe estimated fair value of assets acquired, in thousands ofdollars:

| Prepaid        expenses                      | $1,206   |
|----------------------------------------------|----------|
| Marketable        securities                 | 12,783   |
| Seed        capital investments              | 3,970    |
| Property,        plant and equipment         | 11,887   |
| Notes        receivable                      | 65,513   |
| Other        assets                          | 8,276    |
| Intangible        assets                     | 36,600   |
| Goodwill                                     | 125,932  |
| Less:                                        |     |
| Deferred        compensation liabilities     | (12,783) |
| Accrued        expenses and accounts payable | (11,437) |
| Purchase        price paid                   | $241,947 |

 

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The aggregate purchase priceof approximately $241,947,000 was paid as follows:

|  | $15,611,000 was paid        by the Company in cash from cash on hand                                                                                                                                |
|--|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | $65,514,000 was paid        with the proceeds of the issuance by Viner Finance Inc.,        a wholly-owned subsidiary of the Company, to World        Markets, of a zero coupon promissory note (i) |
|  | $160,822,400 was paid        with the proceeds of debentures issued by E.A. Viner        International Co., a wholly-owned subsidiary of the        Company, to CIBC (ii)                           |

(i) The Zero Coupon            Promissory Note is repayable as related employee            notes receivable, which are assigned to Oppenheimer,            become due and are forgiven. Such payments are to be            made notwithstanding whether any of the            employees’ loans default.

(ii) Two debentures            were issued. The first and second variable rate            exchangeable debentures, in the aggregate principal            amount of $160,822,000, are exchangeable for            6,932,000 Class A Shares of the Company at the rate            of $23.20 per share (approximately 35% of the Class A            Shares on a diluted basis). The first and second            variable rate exchangeable debentures mature on            January 2, 2013, and bear interest at an annual rate            of interest of 3% in the first year, 4% in years two            through four, and 5% in years five through maturity.            A potential additional issuance of up to            approximately 208,000 Class A Shares may be required            if the debentures are exchanged, the holders exercise            their rights to have the resulting Class A Shares            sold and the holders realize a price of less than            $23.20 per share. 

In addition, the Company hasarranged a credit facility in the amount of $50 million withCIBC. In January 2003, the Company borrowed $25 million underthis facility and borrowed the balance in July 2003. Theborrowings are being used to finance broker notes and arerepayable, together with interest at the CIBC U.S. base rate plus2%, over five years or earlier if any broker notes become dueearlier. 

Presented below are pro formaconsolidated results of operations. Amounts presented give effectto the acquisitions of the U.S. Private Client and AssetManagement Divisions of World Markets as if the transactions wereconsummated as at January 1, 2002. The Company’s actualresults for the year ended December 31, 2003 include the resultsof the Oppenheimer private client division and OAM from January3, 2003 and June 4, 2003, respectively.

The pro forma information isfor comparative purposes only and is not indicative either of theactual results that would have occurred if the acquisition hadbeen consummated at the beginning of the periods presented, or offuture operations of the combined companies. CIBC has an October31st year end and, therefore, the 2002 financialinformation for the acquired divisions relates to the year endedOctober 31, 2002. Revenue and expenses included in the pro formapresentation for the year ended December 31, 2002 include certainCIBC corporate allocations, reflecting the manner in which thisdivision was managed within CIBC. Such allocations may distortthe comparability of the years presented below. In the periodended July 31, 2003, the Company incurred certain transitioncosts relating to continued management and clerical support andclearing services provided by World Markets. The Company realizedcost savings after the conversion of the client accounts of theacquired division to the Company’s clearing platform. Theconversion took place on May 27, 2003. 

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| Expressed        in thousands of dollars, except per share amounts | Year ended

December        31, |
|--------------------------------------------------------------------|---------------------------------|
|                                                               | 2003                            | 2002 |
|                                                               |                            |   |
| Revenue                                                            | $735,276                        | $737,281 |
| Profit        (loss) before tax from operations                    | $57,241                         | $(70,542) |
| Net        profit (loss)                                           | $33,200                         | $(40,915) |
| Basic        earnings (loss) per share                             | $2.62                           | $(1.94) |
| Diluted        earnings (loss) per share                           | $1.80                           | $(3.29) |

 

**15. Related Party Transactions**

The Company has notes and accountsreceivable from employees, net, of approximately $97,919,000 atDecember 31, 2003, which are recorded at face value net ofaccumulated amortization. These amounts will be forgiven over aservice period from the initial date of the loan or based onproductivity levels of employees with respect to certain of thesenotes receivable and are contingent on their continued employmentwith the Company. The unforgiven portion of the notes become dueon demand in the event the employee departs during the serviceperiod.

At December 31, 2003, Oppenheimerhad an outstanding guarantee of debt of approximately $3,163,000that arose as a result of the acquisition of Josephthal Group,Inc.

 

**16. Segment Information**

The Company has determined itsreportable segments based on the Company’s method ofinternal reporting, which disaggregates its retail business bybranch and its proprietary and investment banking businesses byproduct. The Company’s segments are: Private Client whichincludes all business generated by the Company’s 89branches, including commission and fee income earned on clienttransactions, net interest earnings on client margin loans andcash balances, stock loan activities and financing activities;Capital Markets which includes market-making activities inover-the-counter equities, institutional trading in both fixedincome and equities, structured assets transactions, bondtrading, trading in mortgage-backed securities, corporateunderwriting activities, public finance activities, and syndicateparticipation; and Asset Management which includes fees frommoney market funds and the investment management services ofOppenheimer Asset Management Inc and Oppenheimer’s assetmanagement divisions employing various programs to professionallymanage client assets either in individual accounts or in funds.The Company evaluates the performance of its segments andallocates resources to them based upon profitability.

In connection with the analysisdone in conjunction with the adoption of SFAS No. 142, theCompany has made changes to its reportable segments. Prior yearresults have been restated based on the composition of the newsegments.

The table below presentsinformation about the reported revenue and operating income(profit before income taxes) of the Company for the years endedDecember 31, 2003, 2002 and 2001. The Company’s business ispredominantly in the U.S. Asset information by reportable segmentis not reported, since the Company does not produce suchinformation for internal use.

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|                     | Year ended December 31, |
|--------------------------|-------------------------|
|                     | Restated

2003          | 2002 | 2001 |
| Revenue:                 |                    |   |   |
| Private        Client    | $525,785,000            | $202,312,000 | $181,292,000 |
| Capital        Markets   | 120,101,000             | 73,005,000 | 73,752,000 |
| Asset        Management  | 39,809,000              | 4,981,000 | 5,562,000 |
| Other                    | 4,298,000               | 3,035,000 | 655,000 |
|                     |                    |   |   |
| Total                    | $689,993,000            | $283,333,000 | $261,261,000 |
|                     |                    |   |   |
| Operating        Income: |                    |   |   |
| Private        Client*   | $17,592,000             | $(12,488,000) | $19,627,000 |
| Capital        Markets   | 20,214,000              | 14,418,000 | 12,835,000 |
| Asset        Management  | 14,347,000              | 13,219,000 | 809,000 |
| Other                    | (3,438,000)             | (2,232,000) | (1,659,000) |
|                     |                    |   |   |
| Total                    | $48,715,000             | $12,917,000 | $31,612,000 |

* Losses in the Private Clientsegment in 2002 were the result of unfavorable market conditionsas well as operating losses and acquisition costs relating toJosephthal, Prime Charter and BUYandHOLD and included litigation,settlement costs, retention and severance costs and the costs ofunder-utilized facilities.

**17. Subsequent events**

(a) On January 27, 2004, a cashdividend of U.S.$0.09 per share (totalling $1,200,000) wasdeclared payable on February 20, 2004 to Class A non-voting andClass B shareholders of record on February 6, 2004.

(b) In January 2004, the Companyreceived monetary damages plus interest in the amount ofapproximately $2.7 million, pursuant to an award by a NationalAssociation of Securities Dealers Dispute Resolution Panelagainst another broker dealer in a raiding case involvingfinancial consultants of Josephthal & Co. Inc, a companyacquired by Oppenheimer in September 2001. These proceeds, whichwere received in January 2004, will be included in theCompany’s results for the first quarter of 2004.

**18. Quarterly Information(unaudited)**

(Expressed in thousands ofdollars, except per share amounts)

|                                    | **Fiscal Quarters** |
|-----------------------------------------|---------------------|
| **Year ended        December 31, 2003** | **Fourth***         | **Third** | **Second** | **First** | **Total*** |
| Revenue                                 | $188,341            | $176,404 | $164,397 | $160,851 | $689,993 |
| Profit before        taxes              | $10,919             | $11,298 | $13,601 | $12,897 | $48,715 |
| Net profit                              | $6,674              | $6,616 | $7,919 | $7,487 | $28,696 |
| Earnings per        share:              |                |   |   |   |   |
| Basic                                   | $0..52              | $0.52 | $0.62 | $0.59 | $2.26 |
| Diluted                                 | $0..43              | $0.36 | $0.43 | $0.49 | $1.65 |
| Dividends per        share              | $0.09               | $0.09 | $0.09 | $0.09 | $0.36 |
| Market price        of Class A Shares:  |                |   |   |   |   |
| High                                    | $35.10              | $29.30 | $29.85 | $25.24 | $35.10 |
| Low                                     | $29.15              | $25.50 | $22.25 | $22.06 | $22.06 |

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|                                                                                   | **Fiscal Quarters** |
|----------------------------------------------------------------------------------------|---------------------|
| **Year ended        December 31, 2002**                                                | **Fourth**          | **Third** | **Second** | **First** | **Total** |
| Revenue                                                                                | $76,150             | $68,522 | $68,144 | $70,517 | $283,333 |
| Operating        profit before taxes                                                   | $5,614              | $2,785 | $1,912 | $2,606 | $12,917 |
| Cumulative        effect of a change in accounting principles                          | -                   | - | - | $1,774 | $1,774 |
| Net profit                                                                             | $3,297              | $1,735 | $883 | $3,406 | $9,321 |
| Earnings per        share:                                                             |                |   |   |   |   |
| Basic                                                                                  | $0.27               | $0.14 | $0.07 | $0.27 | $0.75 |
| - Operations                                                                           | $0.27               | $0.14 | $0.07 | $0.13 | $0.61 |
| - Cumulative        effect of a change in                                              |                |   |   |   |   |
| accounting        principle                                                            |                |   |   | $0.14 | $0.14 |
| Diluted                                                                                | $0.26               | $0.14 | $0.07 | $0.26 | $0.73 |
| Dividends per        share                                                             | $0.09               | $0.09 | $0.09 | $0.09 | $0.36 |
| Market price        of Class A Shares:                                                 |                |   |   |   |   |
| High                                                                                   | $28.45              | $23.15 | $25.70 | $28.88 | $28.88 |
| Low                                                                                    | $19.77              | $20.00 | $21.26 | $24.85 | $19.77 |
| The price        quotations above were supplied by the New York Stock        Exchange. |

 

> 
*The Company has            restated its 2003 earnings via a fourth quarter            adjustment in order to adopt the interest method of            accounting for interest expense on its First and            Second Variable Rate Exchangeable Debentures, as            discussed in notes 1(n) and 7 above. The fourth            quarter and total year of 2003 includes an adjustment            for additional interest expense of $2,406,000 as well            as other adjustments which reduce expenses by            $518,000 (together $1,095,000 after tax or $0.09 per            share). See note 1(p) for a further explanation.

 

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EXHIBIT INDEX

Unless designated by an asterisk indicatingthat such document has been filed herewith, the Exhibits listedbelow have been heretofore filed by the Company pursuant toSection 13 or 15(d) of the Exchange Act and are herebyincorporated herein by reference to the pertinent prior filing.

| Number | Description                                                                                                                                                                                                                                                                                                                                                                                        | Page   |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
| 2.1    | Asset        Purchase Agreement dated as of December 9, 2002 and        Amendment No. 1 to the Asset Purchase Agreement dated as        of January 2, 2003, by and among Fahnestock Viner        Holdings Inc., Viner Finance Inc., Canadian Imperial Bank        of Commerce and CIBC World Markets Corp. (previously        filed as an exhibit to Form 8-K dated January 17, 2003).             |   |
| 2.2    | Asset        Management Acquisition Agreement dated as of January 2,        2003, by and among Fahnestock Viner Holdings Inc.,        Fahnestock & Co. Inc., Canadian Imperial Bank of        Commerce and CIBC World Markets Corp. (previously filed        as an exhibit to Form 8-K dated January 17, 2003).                                                                                |   |
| 3 (a)  | Articles of        Incorporation, as amended, of Fahnestock Viner Holdings        Inc. (previously filed as exhibits to Form 20-F for the        fiscal year ended December 31, 1986 and 1988).                                                                                                                                                                                                    |   |
| 3(b)   | By-Laws, as        amended, of Fahnestock Viner Holdings Inc. (previously        filed as an exhibit to Form 20-F for the fiscal year        ended December 31, 1987).                                                                                                                                                                                                                             |   |
| 4.1    | Stakeholders        Agreement dated December 9, 2002, by and among Fahnestock        Viner Holdings Inc., Canadian Imperial Bank of Commerce,        Albert G. Lowenthal, Phase II Financial L.P., Phase II        Financial Limited, The Albert G. Lowenthal Foundation,        Olga Roberts and Elka Estates Limited (previously filed        as an exhibit to Form 8-K dated January 17, 2003). |   |
| 4.2    | Registration        Rights Agreement dated January 2, 2003, issued by        Fahnestock Viner Holdings Inc. to Canadian Imperial Bank        of Commerce (previously filed as an exhibit to Form 8-K        dated January 17, 2003).                                                                                                                                                               |   |
| 4.3    | Exchangeable        Debenture dated January 6, 2003, issued by E. A. Viner        International Co. to Canadian Imperial Bank of Commerce        (previously filed as an exhibit to Form 8-K dated January        17, 2003).                                                                                                                                                                       |   |
| 4.4    | Interim        Exchangeable Debenture dated January 6, 2003, issued by        E. A. Viner International Co. to Canadian Imperial Bank        of Commerce (previously filed as an exhibit to Form 8-K        dated January 17, 2003).                                                                                                                                                               |   |
| 4.5    | Exchangeable        Debenture dated May 17, 2003, issued by E. A. Viner        International Co. to Canadian Imperial Bank of Commerce        (filed herewith). *                                                                                                                                                                                                                                  |   |
| 10(f)  | Fahnestock        Viner Holdings Inc. 1996 Equity Incentive Plan, Amended        and Restated as at May 17, 1999 (previously filed as an        exhibit to Form S-8 dated May 15, 2000)                                                                                                                                                                                                            |   |
|   |                                                                                                                                                                                                                                                                                                                                                                                               |   |

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|   |                                                                                                                                                                                                                                                                                             |   |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
| 10(k)  | Performance-Based        Compensation Agreement between Fahnestock Viner Holdings        Inc. and Albert G. Lowenthal dated March 25, 1997        (previously filed as an exhibit filed to Form 10-K for        the year ended December 31, 1997)                                                |   |
| 10(l)  | Securities        Purchase Agreement dated June 11, 1997, between 1888        Limited Partnership and DST Systems Inc. and Purchaser        (previously filed as an exhibit to Schedule 14D-1 and        Schedule 13D for First of Michigan Capital Corporation        dated June 18, 1997)      |   |
| 10(m)  | Fahnestock        Viner Holdings Inc. 1996 Equity Incentive Plan Amendment        No. 1 dated February 29, 2000 (previously filed as an        exhibit to Form 10-K for the year ended December 31,        1999)                                                                                 |   |
| 10(n)  | Fahnestock        Viner Holdings Inc. 1996 Equity Incentive Plan Amendment        No. 2 dated May 19, 2001 (previously filed as an exhibit        to Form 10-K for the year ended December 31, 2001)                                                                                             |   |
| 10(o)  | Performance-Based        Compensation Agreement between Fahnestock Viner Holdings        Inc. and Albert G. Lowenthal dated January 1, 2001        (previously filed as an exhibit to Form 10-K for the year        ended December 31, 2001)                                                     |   |
| 10(p)  | Credit        Agreement dated January 2, 2003, by and between        Fahnestock Viner Holdings Inc. and Canadian Imperial Bank        of Commerce (previously filed as an exhibit to Form 8-K        dated January 17, 2003).                                                                    |   |
| 10(q)  | Amended and        Restated Promissory Note dated January 15, 2003, made by        Viner Finance Inc. for the benefit of CIBC World Markets        Corp (previously filed as an exhibit to Form 8-K dated        January 17, 2003).                                                              |   |
| 10(r)  | Non-Competition        Agreement dated January 2, 2003, by and among Canadian        Imperial Bank of Commerce and CIBC World Markets Corp.,        Fahnestock & Co. Inc. and Viner Finance Inc.        (previously filed as an exhibit to Form 8-K dated January        17, 2003).          |   |
| 10(s)  | Non-Solicitation        Agreement dated January 2, 2003 by and among Fahnestock        Viner Holdings Inc., Fahnestock & Co. Inc., Canadian        Imperial Bank of Commerce and CIBC World Markets Corp.        (previously filed as an exhibit to Form 8-K dated January        17, 2003). |   |
| 10(t)  | Clearing        Agreement dated January 2, 2003 between Fahnestock &        Co. Inc. and CIBC World Markets Corp. (previously filed        as an exhibit to Form 8-K dated January 17, 2003).                                                                                                |   |

 

 

 

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| 10(u) | Shareholders        Agreement dated December 9, 2002, by and among Fahnestock        Viner Holdings Inc., Albert G. Lowenthal, Phase II        Financial L.P., Phase II Financial Limited, The Albert G.        Lowenthal Foundation, Olga Roberts and Elka Estates        Limited (previously filed as an exhibit to Form 8-K dated        January 17, 2003). |   |
|-------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
| 14    | Code of        Conduct and Business Ethics for Directors, Officers and        Employees (filed herewith) *                                                                                                                                                                                                                                                     |   |
| 21    | Subsidiaries        of the registrant (filed herewith) *                                                                                                                                                                                                                                                                                                       |   |
| 31.1  | Rule 13a        – 14(a) 15d – 14(a) Certification signed by        A.G. Lowenthal (filed herewith) *                                                                                                                                                                                                                                                 |   |
| 31.2  | Rule 13a        – 14(a) 15d – 14(a) Certification signed by        E.K. Roberts (filed herewith) *                                                                                                                                                                                                                                                   |   |
| 32.1  | Certification        pursuant to 18 U.S.C. Section 1350 signed by A.G.        Lowenthal (filed herewith) *                                                                                                                                                                                                                                                     |   |
| 32.2  | Certification        pursuant to 18 U.S.C. Section 1350 signed by E.K. Roberts        (filed herewith) *                                                                                                                                                                                                                                                       |   |

 

 

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